Modeling Covariance Risk in Merton's ICAPM
提出一种新方法构建默顿ICAPM中的对冲成分，利用日度经济活动指标追踪时变投资机会，并通过非参数投影估计条件协方差，发现该风险度量能有效解释股权风险溢价的时变特征。
We propose a new method for constructing the hedge component in Merton's ICAPM that uses a daily summary measure of economic activity to track time-varying investment opportunities. We then use nonparametric projections to compute a robust estimate of the conditional covariance between stock market returns and our daily economic activity index. We find that the new conditional covariance risk measure plays an important role in explaining time variation in the equity risk premium. Specification tests as well as out-of-sample forecasts of aggregate stock returns suggest that the new covariance risk measure performs well compared to alternative covariance measures previously proposed in the literature.