Whence GARCH? A preference-based explanation for conditional volatility

• 成果类型: Article
• 署名作者: McQueen, G; Vorkink, K
• 署名单位: Brigham Young University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhh008
• 发表日期: 2004
• 页码: 915
• 关键词: STOCK-MARKET VOLATILITY; asset prices; econometric-analysis; RETURN VOLATILITY; prospect-theory; habit formation; equity premium; long-run; BEHAVIOR; heteroskedasticity

摘要

We develop a preference-based equilibrium asset pricing model that explains low-frequency conditional volatility. Similar to Barberis, Huang, and Santos (2001), agents in our model care about wealth changes, experience loss aversion, and keep a mental scorecard that affects their level of risk aversion. A new feature of our model is that when perturbed by unexpected returns, investors become temporarily more sensitive to news. Gradually investors become accustomed to the new level of wealth, restoring prior levels of risk aversion and news sensitivity. The state-dependent sensitivity to news creates the type of volatility clustering found in low-frequency stock returns. We find empirical support for our model's predictions that relate the scorecard to conditional volatility and skewness.