Uncovering the risk-return trade-off through ridge regressions

IF 7.4 2区经济学 Q1 BUSINESS, FINANCE Finance Research Letters Pub Date : 2024-11-12 DOI:10.1016/j.frl.2024.106420

Nuria Alemany, Vicent Aragó, Enrique Salvador

引用次数: 0

Abstract

Using ridge regressions, we introduce a novel methodology to estimate a time-varying version of the market risk-return trade-off. Our model improves available techniques since it allows for flexible patterns in the relationship and does not need a long span of data or additional state variables to accurately estimate the trade-off. We find that this relationship is positive during almost all the sample but it occasionally turns out negative during deep recessions. Our results may help solve the controversy in the previous literature. Investors, policymakers, and regulators must monitor this relationship to optimise investment, manage risks, and prevent financial instability.

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通过脊回归揭示风险与收益的权衡

利用脊回归，我们引入了一种新方法来估算市场风险收益权衡的时变版本。我们的模型改进了现有的技术，因为它允许灵活的关系模式，并且不需要长跨度的数据或额外的状态变量来准确估计权衡。我们发现，这种关系在几乎所有样本中都是正的，但在深度衰退时偶尔会变成负的。我们的研究结果可能有助于解决以往文献中存在的争议。投资者、政策制定者和监管者必须监控这种关系，以优化投资、管理风险和防止金融不稳定。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Finance Research Letters BUSINESS, FINANCE-

CiteScore

11.10

自引率

14.40%

发文量

863

期刊介绍： Finance Research Letters welcomes submissions across all areas of finance, aiming for rapid publication of significant new findings. The journal particularly encourages papers that provide insight into the replicability of established results, examine the cross-national applicability of previous findings, challenge existing methodologies, or demonstrate methodological contingencies. Papers are invited in the following areas: Actuarial studies Alternative investments Asset Pricing Bankruptcy and liquidation Banks and other Depository Institutions Behavioral and experimental finance Bibliometric and Scientometric studies of finance Capital budgeting and corporate investment Capital markets and accounting Capital structure and payout policy Commodities Contagion, crises and interdependence Corporate governance Credit and fixed income markets and instruments Derivatives Emerging markets Energy Finance and Energy Markets Financial Econometrics Financial History Financial intermediation and money markets Financial markets and marketplaces Financial Mathematics and Econophysics Financial Regulation and Law Forecasting Frontier market studies International Finance Market efficiency, event studies Mergers, acquisitions and the market for corporate control Micro Finance Institutions Microstructure Non-bank Financial Institutions Personal Finance Portfolio choice and investing Real estate finance and investing Risk SME, Family and Entrepreneurial Finance