Stock returns, asymmetric volatility, risk aversion, and business cycle: Some new evidence

Sei Wan Kim, Bong Soo Lee

Research output: Contribution to journalArticlepeer-review

31 Scopus citations

Abstract

We study how three interrelated phenomena - excess stock returns and risk relation, risk aversion, and asymmetric volatility movement - change over business cycles. Using an asymmetric generalized autoregressive conditional heteroskedasticity in mean model and a Markov switching model, we find that excess stock return increases and asymmetric volatility movement is weakened during boom periods. This suggests that investors become more risk-averse during boom periods (i.e., procyclical risk aversion), which we confirm using a calibration of a simple equilibrium model. (JEL C32, E32, G12)

Original languageEnglish
Pages (from-to)131-148
Number of pages18
JournalEconomic Inquiry
Volume46
Issue number2
DOIs
StatePublished - Apr 2008

Fingerprint

Dive into the research topics of 'Stock returns, asymmetric volatility, risk aversion, and business cycle: Some new evidence'. Together they form a unique fingerprint.

Cite this