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A Model of Return Volatility with Application to Estimating Relative Risk Aversion

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  • Klock, Mark
  • Phillips, Robert F

Abstract

We estimate a monthly return volatility model that allows for the abrupt changes in volatility often observed in returns data. Using this model we are able to identify key months likely to correspond to draws from a high volatility regime. Using our model in conjunction with Merton's (1980) model relating expected risk premia to risk we obtain reasonable estimates of the coefficient of relative risk aversion. Copyright 1999 by Kluwer Academic Publishers

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  • Klock, Mark & Phillips, Robert F, 1999. "A Model of Return Volatility with Application to Estimating Relative Risk Aversion," Review of Quantitative Finance and Accounting, Springer, vol. 13(3), pages 249-260, November.
    • Handle: RePEc:kap:rqfnac:v:13:y:1999:i:3:p:249-60
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    Cited by:

    1. Yoichiro Fujii & Yutaka Nakamura, 2010. "Equity premium under multiple background risks," Economics Bulletin, AccessEcon, vol. 30(2), pages 933-939.

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