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Assessing the Relation between Equity Risk Premium and Macroeconomic Volatilities in the UK

Author

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  • Renatas Kizys
  • Peter Spencer

Abstract

This paper uses the exponential generalised heteroscedasticity model-in-mean (EGARCH- M) to analyse the relationship between the equity risk premium and macroeconomic volatility. This premium depends upon conditional volatility, which is significantly affected by the long bond yield, acting as a proxy for the underlying rate of inflation.

Suggested Citation

  • Renatas Kizys & Peter Spencer, 2007. "Assessing the Relation between Equity Risk Premium and Macroeconomic Volatilities in the UK," Discussion Papers 07/13, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:07/13
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    References listed on IDEAS

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    Cited by:

    1. Marie Brière & Ombretta Signori, 2011. "Inflation hedging portfolios in different regimes," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 139-163, Bank for International Settlements.
    2. Marie Brière & Ombretta Signori, 2012. "Inflation-Hedging Portfolios : Economic Regimes Matter," Post-Print hal-01494498, HAL.
    3. repec:dau:papers:123456789/9296 is not listed on IDEAS
    4. repec:dau:papers:123456789/7744 is not listed on IDEAS

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    More about this item

    Keywords

    Asset pricing; Risk premium; Macroeconomic volatility; Stochastic discount factor model; Multivariate EGARCH-M model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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