Template-type: ReDIF-Paper 1.0
Author-Name:Massimo Guidolin
Author-Name:Erwin Hansen
Author-Name:Gabriel Cabrera
Title: Time-Varying Risk Aversion and International Stock Returns
Abstract: We estimate an aggregate time-varying risk aversion function using option, stock return and
macroeconomic data for a sample of 8 countries. We document that, in most of the countries, the
degree of risk aversion is countercyclical. Moreover, we show that the estimated risk aversion
function forecasts monthly stock index returns up to 12 months ahead. This effect is statistically
significant in panel regressions, and it survives the inclusion of additional control variables.
Finally, we show that the estimated time-varying risk aversion function provides useful information
to an investor who aims at timing the market. An investment strategy that uses the
estimated time-varying risk aversion measure to solve a mean-variance asset allocation problem,
delivers significant returns.
Classification-JEL:  G10, G11, G15.
Keywords: Implied risk aversion, forecast stock return, market timing, mean-variance asset
allocation.
Length:47 
Number: 23203
Creation-Date: 2023
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp23203.pdf
File-Format: application/pdf
File-Size: 5,96
Handle: RePEc:baf:cbafwp:cbafwp23203