Dahl, Christian M.; Iglesias, Emma M. - School of Economics and Management, University of Aarhus - 2009
In this paper a new GARCH–M type model, denoted the GARCH-AR, is proposed. In particular, it is shown that it is possible to generate a volatility-return trade-off in a regression model simply by introducing dynamics in the standardized disturbance process. Importantly, the volatility in the...