Non-Linear Trade Off between Risk and Return: A Regime-Switching Multi-Factor Framework
Enrique Salvador,
Vicent Aragó
Abstract:This paper examines the risk-return trade-off in Spain during the last 15 years. The study is developed in a multi-factor framework where not only the market risk is considered but also potential changes in the investment opportunity set. Although previous studies find no clear evidence about a positive and significant relation between return and risk, favourable evidence can be obtained if a non-linear relation between return and risk is established. Despite the importance of the intertemporal hedging compone… Show more
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