This paper computes parametric estimates of a time-varying risk premium model and compares the one-step-ahead forecasts implied by that model with those given by a nonparametric kernel estimator of the conditional mean function. The conditioning information used for the nonparametric analysis is...

We develop a penalized two-pass regression with time-varying factor loadings. The penalization in the first pass enforces sparsity for the time-variation drivers while also maintaining compatibility with the no arbitrage restrictions by regularizing appropriate groups of coefficients. The second...