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Does an Intertemporal Tradeoff between Risk and Return Explain Mean Reversion in Stock Prices ?
| Content Provider | Semantic Scholar |
|---|---|
| Author | Kim, Chang-Jin Morley, James Christopher |
| Copyright Year | 1999 |
| Abstract | When volatility feedback is taken into account, there is strong evidence of a positive tradeoff between stock market volatility and expected returns on a market portfolio. In this paper, we ask whether this intertemporal tradeoff between risk and return is responsible for the reported evidence of mean reversion in stock prices. There are two relevant findings. First, price movements not related to the effects of Markov-switching market volatility are largely unpredictable over long horizons. Second, time-varying parameter estimates of stock return predictability reject any inherent mean reversion in favour of behaviour implicit in the historical tradeoff between risk and return. JEL classification: G12; G14 |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.econ.washington.edu/user/cnelson/kmn1_052600.pdf |
| Alternate Webpage(s) | http://research.economics.unsw.edu.au/jmorley/kmn01.pdf |
| Alternate Webpage(s) | http://wuecon.wustl.edu/~morley/kmn1_120799.pdf |
| Language | English |
| Access Restriction | Open |
| Subject Keyword | Estimated Markov chain Movement Population Parameter Reversion (software development) Volatility |
| Content Type | Text |
| Resource Type | Article |
