Essays in Bayesian financial econometrics
Park, Myung D.
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Even though the relation between asset return and its risk is a fundamental of finance, the empirical evidence using the generalized autoregressive conditional Heteroskedasticity in mean (GARCH-M) model has been conflicted. This dissertation focuses on the risk-return tradeoff in the U.S. equity market. The first study investigates the factors causing empirical results of the risk-return tradeoff in stock market and finds that the risk-return tradeoff is hidden by market aggregation. The second study concentrates on the relation between risk and return in agribusiness stock portfolios and finds supporting evidence of a positive risk-return tradeoff and suggests multivariate GARCH-M specifications to produce better results. The third study employs multivariate GARCH-M models and examines Merton (1973)’ intertemporal capital asset pricing model (ICAPM). In this study, robust estimates of a positive risk-return tradeoff for individual portfolios and the market portfolio is revealed.