The relationship between stock returns and volatility in international stock markets |
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| Authors: | Qi Li Jian Yang Cheng Hsiao Young-Jae Chang |
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| Institution: | aDepartment of Economics, Texas A&M University, College Station, TX 77843-4228, USA;bDepartment of Accounting, Finance and MIS, Prairie View A&M University, Prairie View, TX 77446-0638, USA;cDepartment of Economics, University of Southern California Los Angeles, CA 90089, USA;dDepartment of Business Administration, Inje University, Gimhae 621-749, Korea |
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| Abstract: | This study examines the relationship between expected stock returns and volatility in the 12 largest international stock markets during January 1980 to December 2001. Consistent with most previous studies, we find a positive but insignificant relationship during the sample period for the majority of the markets based on parametric EGARCH-M models. However, using a flexible semiparametric specification of conditional variance, we find evidence of a significant negative relationship between expected returns and volatility in 6 out of the 12 markets. The results lend some support to the recent claim Bekaert, G., Wu, G., 2000. Asymmetric volatility and risk in equity markets. Review of Financial Studies 13, 1–42; Whitelaw, R., 2000. Stock market risk and return: an empirical equilibrium approach. Review of Financial Studies 13, 521–547] that stock market returns are negatively correlated with stock market volatility. |
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| Keywords: | Risk– return tradeoff GARCH Semiparametric estimation |
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