Analysis of a time-varying risk premium in the Visegrad Group

Abstract

The risk premium for the Visegrad countries was analyzed. The period of the considerations is between 2005 and 2015. Daily, weekly and monthly data outcomes were compared. It was found that the outcomes are quite similar for all countries. Moreover, changing to weekly or monthly data does not incorporate significantly new knowledge. Generally, daily data remain the best one to analysis. The historical period from which the stock market returns are computed was narrowed to just one calendar year (i.e., 250 stock session days). As a result, it was obtained that the risk premium varies from-70% up to 115%, whereas the average measures vary between and 1.89% and-10.46%. Generally, a negativity of a risk premium was confirmed. But, on the other hand, no leverage effect was found. Nor the significant impact of the company size. The models were based on GARCH types, i.e. AR-GARCH and GARCH in mean models were evaluated. The methods were restricted to simple GARCH(1,1) in case of the variance equations.

Volatility of yields of government bonds among GIIPS countries during the sovereign debt crisis in the euro area

“…In variance equation ℎ is included as a constant, one lagged value of GARCH ℎ ( ) , and ( ) as one lagged value of squared residuals. For further description of the methodology please see also Drachal (2015Drachal ( , 2016.…”