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Financial Constraints and the Risk-Return Relation

Author

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  • Tao Wang

    (Queens College and the Graduate Center of the City University of New York)

Abstract

Stock return volatilities are related to firms' financial status. Financially constrained firms are more volatile. Their stock return volatilities react more negatively to lagged return changes than financially unconstrained firms. This strong negative relation between volatilities and lagged returns for financially constrained firms are not affected by industry differences or firm leverage. Moreover, the debt-equity ratio is not as important as financial constraints for the firm-level risk-return relation.

Suggested Citation

  • Tao Wang, 2007. "Financial Constraints and the Risk-Return Relation," Economics Bulletin, AccessEcon, vol. 7(12), pages 1-12.
    • Handle: RePEc:ebl:ecbull:eb-07g10012
    as

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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume7/EB-07G10012A.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    discriminant analysis;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G0 - Financial Economics - - General

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