Stock Market Risk and Return: An Equilibrium Approach

Thomas Mikosch and Cătălin Stărică : Stock market risk - return inference . An unconditional non - parametric approach

We propose an unconditional non-parametric approach to the simultaneous estimation of volatility and expected return. By means of a detailed analysis of the returns of the Standard & Poors 500 (S&P 500) composite stock index over the last fifty years we show how theoretical results and methodological recommendations from the statistical theory of non-parametric curve inference allow one to cons...

Incentives and Risk Sharing in a Stock Market Equilibrium

Understanding the Risk-Return Tradeoff in the Stock Market

We find that past stock market variance forecasts excess stock market returns and that its predictive ability is greatly enhanced if the consumption-wealth ratio is also included in the forecasting equation. While the risk-return tradeoff is found negative if we use the latter as the instrumental variable for the conditional moments, the former suggests a positive one. We argue that the consump...

Sentiment approach to negative expected return in the stock market

a r t i c l e i n f o A large number of researches have shown that the negative return of risky asset exists and has the profound significance whether for actual investment or theory studies. This paper investigates the effect of sentiment by establishing the sentiment asset pricing model, and explores the negative expected return when the parameters change in different situations. We provide t...

The Threshold Effect of Investors Sentiment On Stock Market Return

The behavioral financial perspective shows some changes in the price of securities have no fundamental reason and depend on the irrational behaviors of investors as measured by the investor sentiment. Investor sentiment plays an important role in the volatility of securities prices and returns. At first, by finding the thresholds and testing these points statistically, we showed that the invest...