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Stock Returns and Volatility

Published online by Cambridge University Press:  06 April 2009

Richard T. Baillie  and
Ramon P. DeGennaro
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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

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