Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95686
Authors: 
Ghysels, Eric
Guérin, Pierre
Marcellino, Massimiliano
Year of Publication: 
2013
Series/Report no.: 
Bank of Canada Working Paper 2013-51
Abstract: 
This paper deals with the estimation of the risk-return trade-off. We use a MIDAS model for the conditional variance and allow for possible switches in the risk-return relation through a Markov-switching specification. We find strong evidence for regime changes in the risk-return relation. This finding is robust to a large range of specifications. In the first regime characterized by low ex-post returns and high volatility, the risk-return relation is reversed, whereas the intuitive positive risk-return trade-off holds in the second regime. The first regime is interpreted as a flight-to-quality regime.
Subjects: 
Economic and statistical models
Financial markets
JEL: 
G10
G12
Document Type: 
Working Paper

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