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

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  • Geoffrey Loudon

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.

Suggested Citation

  • Geoffrey Loudon, 2006. "Is the risk-return relation positive? Further evidence from a stochastic volatility in mean approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(13), pages 981-992.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:13:p:981-992
    DOI: 10.1080/09603100600825269
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    Cited by:

    1. Cano Berlanga, Sebastian & Giménez Gómez, José M. (José Manuel), 2016. "On Chinese stock markets: How have they evolved along time?," Working Papers 2072/267085, Universitat Rovira i Virgili, Department of Economics.
    2. Sebastián Cano-Berlanga & José-Manuel Giménez-Gómez, 2018. "On Chinese stock markets: How have they evolved over time?," Annals of Operations Research, Springer, vol. 266(1), pages 499-510, July.

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