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Volatility spillovers and the price of risk: Evidence from the Swiss stock market

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Abstract.

This paper investigates the behavior of the risk premium on the Swiss stock market. The risk premium consists of two components, which are estimated separately: the amount of volatility and the unit price of risk. By estimating a bivariate GARCH-M model the volatility of the Swiss market is found to be strongly exposed to spillovers from the other major financial markets. To estimate the unit price of risk a Kalman filter procedure is employed, which allows for variability in this variable. Investors place a high price on risk, when the market is considered `expensive'.

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Authors and Affiliations

  1. Department of Economics (SIASR-HSG), University of St. Gallen, Dufourstr. 48, CH-9000 St. Gallen, Switzerland (e-mail: christian.jochum@siasr.unisg.ch), , , , , , CH

    Christian Jochum

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  1. Christian Jochum
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First version received: March 1998/final version received: July 1998

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Jochum, C. Volatility spillovers and the price of risk: Evidence from the Swiss stock market. Empirical Economics 24, 303–322 (1999). https://doi.org/10.1007/s001810050056

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  • DOI: https://doi.org/10.1007/s001810050056

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