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How Much Does the Stock Market Risk Decline with the Investment Horizon? A Cross‐Country Comparison
Author(s) -
Favero Carlo A.,
Nucera Federico
Publication year - 2014
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/ecno.12014
Subject(s) - stock market , economics , stock (firearms) , stock market bubble , financial economics , time horizon , monetary economics , econometrics , finance , mechanical engineering , paleontology , horse , engineering , biology
We perform a cross‐country comparison of stock market risk. Stock market risk is defined as the standard deviation of cumulative stock market returns. We model stock market returns in a VAR(1) system jointly with bond returns and a set of predictive variables. Our results provide evidence of a strong negative horizon effect for US stock market returns and a weak negative horizon effect for Germany and France. When an open economy VAR(1) is considered, we find that stock market risk increases for the United States and Germany, while the evidence for France is mixed.