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Asian Review of Financial Research, Vol., No..
pp.1480~1519
pp.1480~1519
Intertemporal Behavior of Expected Market Returns : Time-Varying and Asymmetry Properties
Kiseok Nam Sy Sims School of Business Yeshiva University 500 West 185th Street New York, NY 10033
Chong Soo Pyun Fogelman College of Business and Economics University of Memphis Memphis, TN 38152
Joshua Krausz Sy Sims School of Business Yeshiva University 500 West 185th Street New York, NY 10033
The intertemporal behavior of expected market returns is not only driven by predictable market volatility, but also by unexpected volatility changes. Most of the empirical literature ignores the effects of unexpected volatility changes on the intertemporal relation; consequently, the previous empirical results suffer from the omitted variable bias. With the effects of a volatility shock incorporated in the estimation, we find a strong positive intertemporal relation. We also find that the quicker reversion of a negative return is attributable to a negative intertemporal relation. We interpret this negative intertemporal relation under a negative return shock as a reflection of strong optimistic expectations by investors on the future performance of stock prices.
Kiseok Nam
Chong Soo Pyun
Joshua Krausz
The intertemporal behavior of expected market returns is not only driven by predictable market volatility, but also by unexpected volatility changes. Most of the empirical literature ignores the effects of unexpected volatility changes on the intertemporal relation; consequently, the previous empirical results suffer from the omitted variable bias. With the effects of a volatility shock incorporated in the estimation, we find a strong positive intertemporal relation. We also find that the quicker reversion of a negative return is attributable to a negative intertemporal relation. We interpret this negative intertemporal relation under a negative return shock as a reflection of strong optimistic expectations by investors on the future performance of stock prices.
Asymmetric GARCH model,Asymmetric mean reverting,Stock market overreaction