The business cycle and the equity risk premium in real time

Renatas Kizys, C. Pierdzioch

Research output: Contribution to journalArticlepeer-review

Abstract

Building on the stochastic discount factor model, we estimated a multivariate exponential GARCH-in-mean model to analyze the link between the business cycle and the equity risk premium in the United States. In order to measure the business cycle, we used revised and realtime monthly data on industrial production for the period from 1965 to 2008. The main result of our empirical analysis is that estimates of the equity risk premium based on real-time macroeconomic data may significantly differ from estimates of the equity risk premium based on revised macroeconomic data.
Original languageEnglish
Pages (from-to)711-722
Number of pages12
JournalInternational Review of Economics and Finance
Volume19
Issue number4
DOIs
Publication statusPublished - Oct 2010

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