Open AccessThe Assessment Of Market Risk Premium In South Africa
Author(s) -
Lumengo BongaBonga
Publication year - 2010
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v26i6.331
Subject(s) - autoregressive conditional heteroskedasticity , economics , stock (firearms) , econometrics , stock market , risk premium , stock exchange , financial economics , volatility (finance) , finance , geography , context (archaeology) , archaeology
This paper makes use of time-varying parameter GARCH-M model to estimate the risk aversion parameter for the South African stock market. The paper further compares the forecasts performance of a time-varying risk premium model with that of a constant risk premium model in predicting stock market returns on the South African stock exchange. The findings of the paper show that risk premium is time varying and indicate that stock market in South Africa is vulnerable to external shocks. Moreover, the paper finds that the time-varying GARCH-M model outperforms the fixed parameter GARCH-M model in predicting stock returns when short-term forecast horizons are used.