Risk-Return Trade-Off for European Stock Markets

Identificador:  PC:2267

Handle: https://hdl.handle.net/20.500.11797/PC2267

Autors:  Savva, Christos S.; Christiansen, Charlotte; Aslanidis, Nektarios

Resum:
This paper adopts dynamic factor models with macro-finance predictors to test the intertemporal risk-return relation for 13 European stock markets. We identify country specific, euro area, and global macro-finance factors to determine the conditional risk and return. Empirically, the risk- return trade-off is generally negative. However, a Markov switching model documents that there is time-variation in this trade-off that is linked to the state of the economy. Keywords: Risk-return trade-off; Dynamic factor model; Macro-finance predictors; European stock markets; Markov switching model JEL Classifications: C22; G11; G12; G17