The Intertemporal Relationship between Risk and Return with Dynamic Conditional Correlation and Time-Varying Beta
Author(s):
Abstract:
This paper examined intertemporal capital asset pricing model in Iran’s Stock Market. We used dynamic conditional correlation to estimate conditional variance and covariance portfolios with market returns. Time varying beta is estimated by Kalman Filter method. Result revealed risk aversion coefficients were between 0. 013 and 0. 28 and average was 0. 20. Significance of risk aversion and insignificance of intercepts revealed that there is ICAPM in Iran’s Stock Market. The result also showed assets with high correlation with market conditional volatilities have low expected returns in next transaction period. In addition، assets with high correlation with exchange rate growth are induced by additional risk premium in exchange rate risks and will have high expected returns in next transaction period
Keywords:
Language:
Persian
Published:
Financial Research, Volume:17 Issue: 39, 2015
Pages:
1 to 20
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