On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks

LAWRENCE R. GLOSTEN*, RAVI JAGANNATHAN, DAVID E. RUNKLE

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3773 Scopus citations

Abstract

We find support for a negative relation between conditional expected monthly return and conditional variance of monthly return, using a GARCH‐M model modified by allowing (1) seasonal patterns in volatility, (2) positive and negative innovations to returns having different impacts on conditional volatility, and (3) nominal interest rates to predict conditional variance. Using the modified GARCH‐M model, we also show that monthly conditional volatility may not be as persistent as was thought. Positive unanticipated returns appear to result in a downward revision of the conditional volatility whereas negative unanticipated returns result in an upward revision of conditional volatility. 1993 The American Finance Association

Original languageEnglish (US)
Pages (from-to)1779-1801
Number of pages23
JournalThe Journal of Finance
Volume48
Issue number5
DOIs
StatePublished - Jan 1 1993

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks'. Together they form a unique fingerprint.

Cite this