You could think of it as linear in conditional volatility rather than linear in the conditional mean.
Finally, the conditional moments of the excess returns are obtained from forecasts of the mean and volatility of the dynamic factor.
In bull markets, the conditional mean increases whereas the volatility decreases.
Volatility clusters are visible in the time series of returns and the unconditional distribution of returns is leptokurtic.
One could use a more complicated deterministic volatility process to mimic the higher moments of observed returns.
Thus, one may ask whether the short-run volatility of stock prices in developing countries actually matters for funded pension accounts.
They both reduce market risk and volatility and increase long-run average returns to producers.
For this reason, for the 1992-96 electoral period we undertook a more detailed examination of volatility at the local level.
