Time-Varying Risk Premium in the Czech Capital Market: Did the Market Experience a Structural Shock in 2008–2009?
Year: 2012 Volume: 62 Issue: 5 Pages: 450-470
Abstract: Time-varying risk premiums and CAPM betas for several assets traded on the Prague Stock Exchange are estimated within a model which is derived as a restriction of a general stochastic discount factor model. The restriction takes the form of the Sharpe-Lintner capital asset pricing model. A time-varying risk premium for the whole market is then estimated within a restriction in the form of the Lucas-Breeden consumption-based capital asset pricing model. A multivariate GARCH-in-mean model is used to estimate the two restrictions. The estimation of the CAPM restriction seems to be favorable to the theoretical model, while the CCAPM seems to be less in accordance with the data. Models with dummies and tests of structural changes are used to show that the market experienced a significant shock in 2008–2009, but on the whole the tests do not give indisputable evidence that the shock had a lasting impact on the market.
JEL classification: C32, E44, G12
Keywords: CAPM, CCAPM, multivariate GARCH-in-mean, risk premium, structural changes
RePEc: http://ideas.repec.org/a/fau/fauart/v62y2012i5p450-470.html
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