Risk-return trade-off in international stock returns: Skewness and business cycles
Journal
Econometrics and Statistics
Date Issued
January 1, 2023
Author(s)
DOI
10.1016/j.ecosta.2023.02.004
Abstract
The fundamental risk-return relation is examined with a flexible regime switching model combining the impact of skewness and business cycle regimes in stock returns. Key methodological and empirical findings point out the need for a highly nonlinear and non-Gaussian model to get a reliable picture on the risk-return relationship. With an international dataset of major countries to global financial markets, the empirical results show that accounting especially for skewness patterns leads to the expected positive risk-return relation, which is importantly also maintained over different business cycle conditions.