Estimation of Equity Risk Premiums in Taiwan Security Market: Comparison in Using GARCH-M, Rolling Window and MIDAS Model

• Main Authors: Yang, Sii-Yuan, 楊喜媛
• Other Authors: Hung, Chih-Young
• Format: Others
• Language: en_US
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/81729314182321162412

碩士 === 國立交通大學 === 管理科學系所 === 100 === This paper investigates risk premiums of Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) by using Ghysel’s mixed data sampling (MIDAS) model which is a new regression regarding volatility estimation. We study the intertemporal relation between conditional mean and conditional variance of the aggregate stock market return. Compared with various approaches such as GARCH-in-mean, rolling window and MIDAS models, we find that: (i) We support for a negative relation between risk and equity risk premium in TSEC weighted index during the period 2006 - 2010. (ii) MIDAS is more convincing in predicting regression for sampled time-series data. (iii) Empirical results show out-sample forecasting ability of MIDAS model also performs well. Specifically, it has smaller forecasting error. (iv) Under MIDAS model of different volatility predictors and different sampling frequencies, a squared premium polynomial with daily frequency data has better estimation.