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Risk and the Rate of Return on Financial Assets: Some Old Wine in New Bottles

Published online by Cambridge University Press:  19 October 2009

Robert A. Haugen  and
A. James Heins
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Extract

Strides have been made recently in the discovery and refinement of theoretical models which purport to describe the relationship between asset prices and their risk attributes. (See especially Lintner [13,14,15], Sharpe [19], Mosin [17,18] and Fama [7,8.9].) The models have gained widespread acceptance because of their intuitive appeal and because most reported empirical evidence [1,4,5,11,20,21] allegedly supports their predictive value. It is our purpose to analyze critically one aspect of the nature of this evidence, reveal its inherent weakness, and to design an alternative test to examine the risk-return function. After observing the performance of an extremely large number of issues over long periods of time, we find little support for the notion that risk premiums have, in fact, manifested themselves in realized rates of return.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 5 , December 1975 , pp. 775 - 784
Copyright
Copyright © School of Business Administration, University of Washington 1975

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References

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