We perform a cross-country comparison of stock market risk. Stock market risk is de¯ned 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 e®ect for US stock market returns and a weak negative horizon e®ect for Germany and France. When an open economy VAR(1) is considered, we ¯nd that stock market risk increases for US and Germany, while the evidence for France is mixed.
How much does the stock market risk decline with the investment horizon? A cross-country comparison
Favero, CarloMembro del Collaboration Group
;Nucera, Federico
Membro del Collaboration Group
2014
Abstract
We perform a cross-country comparison of stock market risk. Stock market risk is de¯ned 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 e®ect for US stock market returns and a weak negative horizon e®ect for Germany and France. When an open economy VAR(1) is considered, we ¯nd that stock market risk increases for US and Germany, while the evidence for France is mixed.
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