Is the risk-return relation positive? Further evidence from a stochastic volatility in mean approach

Geoffrey F. Loudon*

*Corresponding author for this work

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Existing evidence on the relation between risk and return is conflicting. This evidence is extended by estimating a stochastic volatility in mean model using equity returns from a mix of ten emerging and five developed markets. Results suggest that while the relation is significantly positive for China and significantly negative for Australia, it is insignificant for the remaining markets studied. Findings also vary across subperiods related to the Asian financial crisis of 1997 to 1998. Model estimates identify some important differences across these markets in the nature of volatility in terms of its own volatility, persistence and predictability.

Original languageEnglish
Pages (from-to)981-992
Number of pages12
JournalApplied Financial Economics
Volume16
Issue number13
DOIs
Publication statusPublished - 1 Feb 2006

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