IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v42y2010i4p403-412.html
   My bibliography  Save this article

Are stocks really riskier than bonds?

Author

Listed:
  • Chulho Jung
  • William Shambora
  • Kyongwook Choi

Abstract

Conventional wisdom holds that stocks are riskier than bonds; thus when the stock market becomes volatile, money flows from the stock market into the perceived safe haven of the bond market. In this article, we find that this notion is not necessarily accurate and might lead people to make incorrect investment decisions. In fact, intermediate- and long-term bonds are riskier than stocks when we measure risk by the coefficient of variation. We examine a case where an inaccurate perception regarding the relative riskiness of the two types of assets could play a part in what appears to be short-sighted and potentially costly behaviour of investors in financial markets.

Suggested Citation

  • Chulho Jung & William Shambora & Kyongwook Choi, 2010. "Are stocks really riskier than bonds?," Applied Economics, Taylor & Francis Journals, vol. 42(4), pages 403-412.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:4:p:403-412
    DOI: 10.1080/00036840701704386
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840701704386
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036840701704386?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    4. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1995. "Fundamental Economic Variables, Expected Returns, and Bond Fund Performance," Journal of Finance, American Finance Association, vol. 50(4), pages 1229-1256, September.
    5. Choong Tze Chua & Winston Koh & Krishna Ramaswamy, 2005. "Comparing returns of US treasuries versus equities: implications for market and portfolio efficiency," Applied Financial Economics, Taylor & Francis Journals, vol. 15(17), pages 1213-1218.
    6. Breunig, Robert, 2001. "An almost unbiased estimator of the coefficient of variation," Economics Letters, Elsevier, vol. 70(1), pages 15-19, January.
    7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keunbae Ahn, 2021. "Predictable Fluctuations in the Cross-Section and Time-Series of Asset Prices," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2021, January-A.
    2. Michele Costola & Massimiliano Caporin, 2016. "Rational Learning For Risk-Averse Investors By Conditioning On Behavioral Choices," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-26, March.
    3. Hakim, Abdul & McAleer, Michael, 2009. "Forecasting conditional correlations in stock, bond and foreign exchange markets," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(9), pages 2830-2846.
    4. Mehmet Sahiner, 2022. "Forecasting volatility in Asian financial markets: evidence from recursive and rolling window methods," SN Business & Economics, Springer, vol. 2(10), pages 1-74, October.
    5. He, Xue-Zhong & Li, Youwei, 2015. "Testing of a market fraction model and power-law behaviour in the DAX 30," Journal of Empirical Finance, Elsevier, vol. 31(C), pages 1-17.
    6. Zhang, Yue-Jun & Fan, Ying & Tsai, Hsien-Tang & Wei, Yi-Ming, 2008. "Spillover effect of US dollar exchange rate on oil prices," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 973-991.
    7. Asteriou, Dimitrios & Bashmakova, Yuliya, 2013. "Assessing the impact of oil returns on emerging stock markets: A panel data approach for ten Central and Eastern European Countries," Energy Economics, Elsevier, vol. 38(C), pages 204-211.
    8. Elder, John, 2001. "Can the Volatility of the Federal Funds Rate Explain the Time-Varying Risk Premium in Treasury Bill Returns?," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 73-97, January.
    9. Marco Mele, 2014. "Open-End Fund Performance Persistence: A Study on KC Libra Fund," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 3(1), pages 1-8.
    10. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    11. Xue-Zhong He & Youwei Li, 2017. "The adaptiveness in stock markets: testing the stylized facts in the DAX 30," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1071-1094, November.
    12. Veronesi, Pietro, 2004. "The Peso problem hypothesis and stock market returns," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 707-725, January.
    13. Mushtaq Hussain Khan & Junaid Ahmed & Mazhar Mughal & Imtiaz Hussain Khan, 2023. "Oil price volatility and stock returns: Evidence from three oil‐price wars," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3162-3182, July.
    14. Jones, Brad & Lin, Chien-Ting & Masih, A. Mansur M., 2005. "Macroeconomic announcements, volatility, and interrelationships: An examination of the UK interest rate and equity markets," International Review of Financial Analysis, Elsevier, vol. 14(3), pages 356-375.
    15. Saqib Muneer & Babar Zaheer Butt & Kashif Ur Rehman, 2011. "A Multifactor Model of Banking Industry Stock Returns: An Emerging Market Perspective," Information Management and Business Review, AMH International, vol. 2(6), pages 267-275.
    16. Tim Bollerslev & Ray Y. Chou & Narayanan Jayaraman & Kenneth F. Kroner - L, 1991. "es modéles ARCH en finance : un point sur la théorie et les résultats empiriques," Annals of Economics and Statistics, GENES, issue 24, pages 1-59.
    17. Syed Kamran Ali Haider & Shujahat Haider Hashmi & Ishtiaq Ahmed, 2017. "Systematic Risk Factors And Stock Return Volatility," APSTRACT: Applied Studies in Agribusiness and Commerce, AGRIMBA, vol. 11(01-2), September.
    18. Ågren, Martin, 2005. "Myopic Loss Aversion, the Equity Premium Puzzle, and GARCH," Working Paper Series 2005:11, Uppsala University, Department of Economics.
    19. Abdulilah Ibrahim Alsheikhmubarak & Evangelos Giouvris, 2018. "A Comparative GARCH Analysis of Macroeconomic Variables and Returns on Modelling the Kurtosis of FTSE 100 Implied Volatility Index," Multinational Finance Journal, Multinational Finance Journal, vol. 22(3-4), pages 119-172, September.
    20. Chen, Xiaoyu & Chiang, Thomas C., 2016. "Stock returns and economic forces—An empirical investigation of Chinese markets," Global Finance Journal, Elsevier, vol. 30(C), pages 45-65.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:42:y:2010:i:4:p:403-412. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.