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An Empirical Study of the Risk-Return Hypothesis Using Common Stock Portfolios of Life Insurance Companies

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  • Gentry, James
  • Pike, John

Abstract

The relationship between return on assets and their riskiness is one of the liveliest topics in financial literature. In his 1952 landmark article, Markowitz developed a mathematical model that captured this key financial concept. defined risk as the variance of the rate of return of a portfolio. Later, Sharpe hypothesized a positive linear relationship between expected rate of return on an asset and the risk premium associated with that asset. Subsequently, Sharpe tested this hypothesis empirically and found support for his theory. Although portfolio theory specifies the two parameters of this model as ex ante return and risk, Sharpe used ex post data for testing the risk-return relationship. designated the ex post mean rate of return obtained on an an asset as a proxy for expected return and the standard deviation of ex post annual rates of return as a surrogate for risk.

Suggested Citation

  • Gentry, James & Pike, John, 1970. "An Empirical Study of the Risk-Return Hypothesis Using Common Stock Portfolios of Life Insurance Companies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 5(2), pages 179-185, June.
    • Handle: RePEc:cup:jfinqa:v:5:y:1970:i:02:p:179-185_01
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    Cited by:

    1. Timmermans, J. & Zijlstra, R.J.J., 1977. "Photon time-interval statistics of laser light scattered by brownian particles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 88(3), pages 600-606.
    2. Van Rijswijk, F.C. & Smith, U.L., 1975. "Fluctuations in doubly scattered laser light," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 83(1), pages 121-142.
    3. Susan Kerubo Onsongo & Stephen M. A. Muathe & Lucy Wamugo Mwangi, 2020. "Financial Risk and Financial Performance: Evidence and Insights from Commercial and Services Listed Companies in Nairobi Securities Exchange, Kenya," IJFS, MDPI, vol. 8(3), pages 1-15, August.
    4. Frenkel, D. & Van Dort, M.J. & Zijlstra, R.J.J., 1985. "Light scattering study of the statistical properties of nematic director fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 131(1), pages 278-288.

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