On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks
Lawrence R. Glosten1, Ravi Jagannathan1, David E. Runkle2
1University of Minnesota and the Federal Reserve Bank of Minneapolis,
2Glosten is from Columbia University, Jagannathan is from the University of Minnesota and the Federal Reserve Bank of Minneapolis, and Runkle is from the Federal Reserve Bank of Minneapolis and the University of Minnesota. We benefitted from discussions with Tim Bollerslev, William Breen, Lars Hansen, Patrick Hess, David Hsieh, Ruth Judson, Narayana Kocherlakota, Robert McDonald, Dan Nelson, and Dan Siegel, and from comments from David Backus and René Stulz. Ruth Judson and Joe Piepgras did many of the computations. We are especially grateful for the insightful and detailed comments of the referee. The usual disclaimer regarding errors applies. Part of this research was performed while Glosten was a Visiting Economist at the New York Stock Exchange. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the New York Stock Exchange and its members.