The time-varying risk–return trade-off and its explanatory and predictive factors
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comunitat-uji-handle2:10234/8648
comunitat-uji-handle3:10234/8649
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Title
The time-varying risk–return trade-off and its explanatory and predictive factorsDate
2023Publisher
ElsevierBibliographic citation
ALEMANY, Nuria; ARAGÓ, Vicent; SALVADOR, Enrique. The time-varying risk–return trade-off and its explanatory and predictive factors. The North American Journal of Economics and Finance, 2023, vol. 68, p. 101953.Type
info:eu-repo/semantics/articlePublisher version
https://www.sciencedirect.com/science/article/pii/S1062940823000761Version
info:eu-repo/semantics/publishedVersionSubject
Abstract
We analyze the intertemporal dimension of the risk–return trade-off and determine the drivers that better explain and predict its evolution. To this end, we propose a novel estimate of the relationship between return ... [+]
We analyze the intertemporal dimension of the risk–return trade-off and determine the drivers that better explain and predict its evolution. To this end, we propose a novel estimate of the relationship between return and risk where we generate time variation in the trade-off without conditioning the estimates to any state variable. We compare this dynamic approach with time-invariant or state-dependent estimates and observe that our dynamic method reasonably aligns with the constant (state dependent) methods but it offers a much broader picture of the risk–return trade-off. We also link its evolution to a set of macroeconomic, systematic and sentiment or uncertainty risk factors. We find that the risk–return relationship is positive during expansionary periods but it decreases during recessionary periods where occasionally even turns out negative. Our main conclusions hold for the consideration of hedging components, different MV-GARCH models or window lengths and several proxies of market returns and risk. [-]
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The North American Journal of Economics and Finance, 2023Funder Name
Universitat Jaume I | Ministerio de Ciencia, Innovación y Universidades
Project code
UJI-B2020-48 | PID2020-115450GB-I00
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info:eu-repo/semantics/openAccess
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- COFIN_Articles [217]