Abstract
The capital asset pricing model provides a theoretical structure for the pricing of assets with uncertain returns. The premium to induc e risk-averse investors to bear risk is proportional to the nondivers ifiable risk, which is measured by the covariance of the asset return with the market portfolio return. In this paper, a multivariate, gen eralized-autoregressive, conditional, heteroscedastic process is esti mated for returns to bills, bonds, and stocks where the expected retu rn is proportional to the conditional covariance of each return with that of a fully diversified or market portfolio. It is found that the conditional covariances are quite variable over time and are a signi ficant determinant of the time-varying risk premia. The implied betas are also time varying and forecastable. Copyright 1988 by University of Chicago Press.
Keywords
Capital asset pricing modelRisk premiumEconomicsEconometricsPortfolioConsumption-based capital asset pricing modelHeteroscedasticityAutoregressive modelFinancial economics
Related Publications
An Intertemporal Capital Asset Pricing Model
An intertemporal model for the capital market is deduced from the portfolio selection behavior by an arbitrary number of investors who aot so to maximize the expected utility o...
Capital Market Equilibrium with Transaction Costs
A two-asset, intertemporal portfolio selection model is formulated incorporating proportional transaction costs. The demand for assets is shown to be sensitive to these costs. H...
Risk, Return, and Equilibrium: Empirical Tests
This paper tests the relationship between average return and risk for New York Stock Exchange common stocks. The theoretical basis of the tests is the "two-parameter" portfolio ...
Is the ex ante risk premium always positive?
This paper develops tests of inequality restrictions implied by conditional asset pricing models. The methodology is easy to implement, requires little knowledge of the conditio...
On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks
ABSTRACT We find support for a negative relation between conditional expected monthly return and conditional variance of monthly return, using a GARCHâM model modified by allowi...
Publication Info
- Year
- 1988
- Type
- article
- Volume
- 96
- Issue
- 1
- Pages
- 116-131
- Citations
- 3186
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
3186
OpenAlex
Cite This
Tim Bollerslev,
Robert F. Engle,
Jeffrey M. Wooldridge
(1988).
A Capital Asset Pricing Model with Time-Varying Covariances.
Journal of Political Economy
, 96
(1)
, 116-131.
https://doi.org/10.1086/261527
Identifiers
- DOI
- 10.1086/261527