The time-varying GARCH-in-mean model

I propose an estimation strategy for the stochastic time-varying risk premium parameter in the context of a time-varying GARCH-in-mean (TVGARCH-in-mean) model. A Monte Carlo study shows that the proposed algorithm has good finite sample properties. Using monthly excess returns on the CRSP index, I d...

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Bibliographic Details
Published in:Economics letters 2017-08, Vol.157, p.129-132
Main Author: Dias, Gustavo Fruet
Format: Article
Language:English
Subjects:
Algorithms
Estimating techniques
GARCH-type models
Iterative estimators
Monte Carlo simulation
Risk premiums
Risk-return tradeoff
Stochastic models
Studies
Time-varying coefficients
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Summary:I propose an estimation strategy for the stochastic time-varying risk premium parameter in the context of a time-varying GARCH-in-mean (TVGARCH-in-mean) model. A Monte Carlo study shows that the proposed algorithm has good finite sample properties. Using monthly excess returns on the CRSP index, I document that the risk premium parameter is indeed time-varying and shows high degree of persistence. •Estimation of the stochastic time-varying risk premium parameter within the TVGARCH-in-mean models.•The proposed kernel-based iterative estimator attains good finite sample performance.•The risk premium parameter is found to be time-varying and highly persistent.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2017.06.005