Hostname: page-component-cd9895bd7-lnqnp Total loading time: 0 Render date: 2025-01-05T13:54:42.846Z Has data issue: false hasContentIssue false
  • English
  • Français

Stock Returns and Volatility

Published online by Cambridge University Press:  06 April 2009

Richard T. Baillie  and
Ramon P. DeGennaro
Get access Rights & Permissions [Opens in a new window]

Abstract

Most asset pricing models postulate a positive relationship between a stock portfolio's expected returns and risk, which is often modeled by the variance of the asset price. This paper uses GARCH in mean models to examine the relationship between mean returns on a stock portfolio and its conditional variance or standard deviation. After estimating a variety of models from daily and monthly portfolio return data, we conclude that any relationship between mean returns and own variance or standard deviation is weak. The results suggest that investors consider some other risk measure to be more important than the variance of portfolio returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 25 , Issue 2 , June 1990 , pp. 203 - 214
Copyright
Copyright © School of Business Administration, University of Washington 1990

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Baillie, R. T., and Bollerslev, T.. “The Message in Daily Exchange Rates: A Conditional Variance Tale.” Journal of Business and Economic Statistics, 7 (07 1989), 297–305.CrossRefGoogle Scholar
Bawa, V. S., and Lindenberg, E. B.. “Capital Market Equilibrium in a Mean-Lower Partial Moment Framework.” Journal of Financial Economics, 5 (11 1977), 189–200.CrossRefGoogle Scholar
Berndt, E. K.; Hall, B. H.; Hall, R. E.; and Hausman, J.. “Estimation and Inference in Nonlinear Structural Models.” Annals of Economic and Social Measurement, 3 (10 1974), 653–665.Google Scholar
Black, F., and Scholes, M.. “The Valuation of Option Contracts and a Test of Market Efficiency.” Journal of Finance, 27 (05 1974), 399–418.CrossRefGoogle Scholar
Bollerslev, T. “Generalized Autoregressive Conditional Heteroskedasticity.” Journal of Econometrics, 31 (04 1986), 307–327.CrossRefGoogle Scholar
Bollerslev, T. “A Conditional Heteroskedastic Time Series Model for Speculative Prices and Rates of Return.” Review of Economics and Statistics, 69 (08 1987), 542–547.CrossRefGoogle Scholar
DeGennaro, R. P. “Payment Delays: Bias in the Yield Curve.” Journal of Money, Credit, and Banking, 20 (11 1988), 684–690.CrossRefGoogle Scholar
Engle, R. F. “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of UK Inflation.” Econometrica, 50 (07 1982), 987–1008.CrossRefGoogle Scholar
Engle, R. F., and Bollerslev, T.. “Modelling the Persistence of Conditional Variances.” Econometric Reviews, 5 (1986), 1–50.CrossRefGoogle Scholar
Engle, R. F.; Lilien, D. M.; and Robins, R. P.. “Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model.” Econometrica, 55 (03 1987), 391–407.CrossRefGoogle Scholar
Flannery, M. J., and Protopapadakis, A. A.. “From T-bills to Common Stocks: Investigating the Generality of Intra-week Return Seasonally.” Journal of Finance, 43 (06 1988), 431–450.Google Scholar
French, K. R.; Schwert, G. W.; and Stambaugh, R. E.. “Expected Stock Returns and Volatility.” Journal of Financial Economics, 19 (09 1987), 3–29.CrossRefGoogle Scholar
Hogan, W. W., and Warren, J. M.. “Toward the Development of an Equilibrium Capital-Market Model Based on Semivariance.” Journal of Financial and Quantitative Analysis, 9 (01 1974), 1–12.CrossRefGoogle Scholar
Jahankhani, A. “E-V and E-S Capital Asset Pricing Models: Some Empirical Tests.” Journal of Financial and Quantitative Analysis, 11 (11 1976), 513–528.CrossRefGoogle Scholar
Kraus, A., and Litzenberger, R. H.. “Skewness Preference and the Valuation of Risk Assets.” Journal of Finance, 31 (09 1976), 1085–1100.Google Scholar
Lakonishok, J., and Levi, M.. “Weekend Effects on Stock Returns: A Note.” Journal of Finance, 37 (06 1982), 883–889.CrossRefGoogle Scholar
McCurdy, T. H., and Morgan, I. G.. “Tests of the Martingale Hypothesis for Foreign Currency Futures with Time-Varying Volatility.” International Journal of Forecasting, 3 (1987), 131–148.CrossRefGoogle Scholar
Penman, S. H.. “The Distribution of Earnings News over Time and Seasonalities in Aggregate Stock Returns.” Journal of Financial Economics, 18 (06 1987), 199–228.CrossRefGoogle Scholar
Pindyck, R. S.. “Risk, Inflation and the Stock Market.” American Economic Review, 74 (06 1984), 335–351.Google Scholar
Poterba, J. M., and Summers, L. H.. “The Persistence of Volatility and Stock Market Fluctuations.” American Economic Review, 76 (12 1986), 1142–1151.Google Scholar
Price, K.; Price, B.; and Nantell, T. J.. “Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results.” Journal of Finance, 37 (06 1982), 843–855.CrossRefGoogle Scholar
Scholes, M., and Williams, J.. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, 5 (12 1977), 309–327.CrossRefGoogle Scholar
Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, 19 (09 1964), 425–442.Google Scholar