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Abstract Details
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Activity Number:
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551
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Type:
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Invited
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Date/Time:
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Wednesday, August 3, 2011 : 2:00 PM to 3:50 PM
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Sponsor:
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IMS
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| Abstract - #300014 |
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Title:
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Time-Varying Risk Premium in Large Cross-Sectional Equity Data Sets
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Author(s):
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Olivier Scaillet*+ and Patrick Gagliardini and Elisa Ossola
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Companies:
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University of Geneva/Swiss Finance Institute and University of Lugano/Swiss Finance Institute and University of Lugano
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Address:
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, , ,
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Keywords:
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large panel ;
asset pricing ;
risk premium ;
thresholding ;
equity data ;
testing
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Abstract:
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We develop an econometric methodology to infer the path of the risk premium from large unbalanced panel of individual stock returns. We estimate the time-varying risk premium implied by conditional linear asset pricing models through simple two-pass cross-sectional regressions, and show consistency and asymptotic normality under increasing cross-sectional and time series dimensions. We address consistent estimation of the asymptotic variance, and testing for the asset pricing restrictions. Our approach also delivers inference for time-varying cost of equity. The empirical illustration on over 12,500 US stock returns from January 1960 to December 2009 shows that the value risk premium is counter-cyclical. It is also larger and more volatile in recent years. The cost of equity exhibits large positive and negative strays from standard unconditional estimates.
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