NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring the Risk-Return Tradeoff with Time-Varying Conditional Covariances

Esben Hedegaard, Robert J. Hodrick

NBER Working Paper No. 20245
Issued in June 2014
NBER Program(s):   AP

We examine the prediction of Merton's intertemporal CAPM that time varying risk premiums arise from the conditional covariances of returns on assets with the return on the market and other state variables. We find a positive and significant price of risk for the covariance with the market return that is driven by the time series variation in the conditional covariances, and the risk-premium on the market remains positive and significant after controlling for additional state variables. Our method estimates the risk-return tradeoff in the ICAPM using multiple portfolios as test assets.

download in pdf format
   (264 K)

email paper

Supplementary materials for this paper:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20245

Users who downloaded this paper also downloaded* these:
Hedegaard and Hodrick w19969 Estimating the Risk-Return Trade-off with Overlapping Data Inference
Choi, Richardson, and Whitelaw w20187 On the Fundamental Relation Between Equity Returns and Interest Rates
Gallup, Sachs, and Mellinger w6849 Geography and Economic Development
Kacperczyk, Nosal, and Stevens w20246 Investor Sophistication and Capital Income Inequality
Fernald w20248 Productivity and Potential Output Before, During, and After the Great Recession
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us