Analysing the risk premium in the Italian stock market: ARCH-M models versus non-parametric models |
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| Authors: | Laura Bottazzi Valentina Corradi |
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| Affiliation: | 1. Massachussetts Institute of Technology , Cambridge , Massachussetts , 02139;2. University of California , San Diego, La Jolla , California , 92093 , USA |
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| Abstract: | This Paper investigates the variability of the risk premium in the Italian stock market, over the period 1978–89. We have modelled voatility using two different approaches: ARCH-M models and non-parametric models. The estimate of the ARCH-M models confirm the existence of both an ARCH process in the variance and a time-varying risk premium. Also the non-parametric specification confirms the existence of a time varying risk premium. Moreover in both models the acceleration in the inflation rate has a negative effect on stock prices. |
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