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Uncovering The Risk Return Relation In The Stock Market
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Book Synopsis Uncovering the Risk-return Relation in the Stock Market by : Hui Guo
Download or read book Uncovering the Risk-return Relation in the Stock Market written by Hui Guo and published by . This book was released on 2003 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is an ongoing debate in the literature about the apparent weak or negative relation between risk (conditional variance) and return (expected returns) in the aggregate stock market. We develop and estimate an empirical model based on the ICAPM to investigate this relation. Our primary innovation is to model and identify empirically the two components of expected returns--the risk component and the component due to the desire to hedge changes in investment opportunities. We also explicitly model the effect of shocks to expected returns on ex post returns and use implied volatility from traded options to increase estimation efficiency. As a result, the coefficient of relative risk aversion is estimated more precisely, and we find it to be positive and reasonable in magnitude. Although volatility risk is priced, as theory dictates, it contributes only a small amount to the time-variation in expected returns. Expected returns are driven primarily by the desire to hedge changes in investment opportunities. It is the omission of this hedge component that is responsible for the contradictory and counter-intuitive results in the existing literature
Book Synopsis Uncovering the Risk-Return Relation in the Stock Market by :
Download or read book Uncovering the Risk-Return Relation in the Stock Market written by and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Risk-Return Relation in International Stock Markets, Forthcoming by : Hui Guo
Download or read book On the Risk-Return Relation in International Stock Markets, Forthcoming written by Hui Guo and published by . This book was released on 2013 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the risk-return relation in international stock markets using realized variance constructed from MSCI (Morgan Stanley Capital International) daily stock price indices. In contrast with CAPM, realized variance by itself provides negligible information about future excess stock market returns; however, we uncover a positive and significant risk-return tradeoff in many countries after controlling for the (U.S.) consumption-wealth ratio. U.S. realized variance is also significantly related to future international stock market returns; more importantly, it always subsumes the information content of its local counterparts. Our results indicate that stock market variance is an important determinant of the equity premium.
Book Synopsis The Risk-Return Relation in International Stock Markets by : Hui Guo
Download or read book The Risk-Return Relation in International Stock Markets written by Hui Guo and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the risk-return relation in international stock markets using realized variance constructed from MSCI (Morgan Stanley Capital International) daily stock price indexes. In contrast with CAPM, realized variance by itself provides negligible information about future excess stock market returns; however, we uncover a positive and significant risk-return tradeoff in many countries after controlling for the (U.S.) consumption-wealth ratio. U.S. realized variance is also significantly related to future international stock market returns; more importantly, it always subsumes the information content of its local counterparts. Our results indicate that stock market variance is an important determinant of the equity premium.
Book Synopsis Beyond the Basics: Unveiling the Complexities of Risk-Return Relationships by : Naina
Download or read book Beyond the Basics: Unveiling the Complexities of Risk-Return Relationships written by Naina and published by . This book was released on 2024-06 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis High Returns from Low Risk by : Pim van Vliet
Download or read book High Returns from Low Risk written by Pim van Vliet and published by John Wiley & Sons. This book was released on 2017-01-17 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: Believing "high-risk equals high-reward" is holding your portfolio hostage High Returns from Low Risk proves that low-volatility, low-risk portfolios beat high-volatility portfolios hands down, and shows you how to take advantage of this paradox to dramatically improve your returns. Investors traditionally view low-risk stocks as safe but unprofitable, but this old canard is based on a flawed premise; it fails to see beyond the monthly horizon, and ignores compounding returns. This book updates the thinking and brings reality to modelling to show how low-risk stocks actually outperform high-risk stocks by an order of magnitude. Easy to read and easy to implement, the plan presented here will help you construct a portfolio that delivers higher returns per unit of risk, and explains how to achieve excellent investment results over the long term. Do you still believe that investors are rewarded for bearing risk, and that the higher the risk, the greater the reward? That old axiom is holding you back, and it is time to start seeing the whole picture. This book shows you, through deep historical simulation, how to reap the rewards of smarter investing. Learn how and why low-risk, low-volatility stocks beat the market Discover the formula that outperforms Greenblatt's Construct your own low-risk portfolio Select the right ETF or low-risk fund to manage your money Great returns and lower risk sound like a winning combination — what happens once everyone is doing it? The beauty of the low-risk strategy is that it continues to work even after the paradox is widely known; long-term investment success is possible for anyone who can shake off the entrenched wisdom and go low-risk. High Returns from Low Risk provides the proof, model and strategy to reign in your exposure while raking in the profit.
Book Synopsis What is the Shape of the Risk-Return Relation? by : Alberto G. P. Rossi
Download or read book What is the Shape of the Risk-Return Relation? written by Alberto G. P. Rossi and published by . This book was released on 2010 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a flexible econometric approach that avoids imposing restrictive modeling assumptions, we find evidence of a non-monotonic relation between conditional volatility and expected stock market returns: At low-to-medium levels of conditional volatility there is a positive trade-off between risk and expected returns, but this relationship gets inverted at high levels of volatility as observed during the recent financial crisis. We propose a new measure of risk based on the conditional covariance between daily observations of a broad economic activity index and stock returns. Using this covariance measure, we find clear evidence of a monotonically increasing risk-return trade-off. Our finding of a non-monotonic mean-volatility relation helps explain the absence of a consensus in the empirical literature on the sign of the risk-return trade-off. At the same time, our finding that the expected return is a monotonically rising function of the conditional covariance measure also suggests that a positive risk-return relation can be established once a better measure of risk is used.
Book Synopsis There is a Risk-return Tradeoff After All by : Eric Ghysels
Download or read book There is a Risk-return Tradeoff After All written by Eric Ghysels and published by . This book was released on 2004 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the ICAPM intertemporal relation between the conditional mean and the conditional variance of the aggregate stock market return. We introduce a new estimator that forecasts monthly variance with past daily squared returns %u2013 the Mixed Data Sampling (or MIDAS) approach. Using MIDAS, we find that there is a significantly positive relation between risk and return in the stock market. This finding is robust in subsamples, to asymmetric specifications of the variance process, and to controlling for variables associated with the business cycle. We compare the MIDAS results with tests of the ICAPM based on alternative conditional variance specifications and explain the conflicting results in the literature. Finally, we offer new insights about the dynamics of conditional variance.
Book Synopsis The Relationship between Risk and Expected Return in Europe by :
Download or read book The Relationship between Risk and Expected Return in Europe written by and published by Fundacion BBVA. This book was released on with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Volatility written by Robert A. Jarrow and published by . This book was released on 1998 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Book Synopsis Financial Markets and the Real Economy by : John H. Cochrane
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Book Synopsis Understanding the Risk-Return Relation by : Scott Cederburg
Download or read book Understanding the Risk-Return Relation written by Scott Cederburg and published by . This book was released on 2017 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: The ICAPM implies that the market's conditional expected return is proportional to its conditional variance and that the reward-to-risk ratio equals the representative investor's coefficient of relative risk aversion. Prior studies examine this relation using the stock market to proxy for aggregate wealth and find mixed results. We show, however, that stock-based tests suffer from low power and lead to biased estimates of the risk-return tradeoff when stocks are an imperfect market proxy. Tests designed to mitigate this bias by incorporating a more comprehensive measure of aggregate wealth produce large, positive estimates of the risk-aversion coefficient around seven to nine.
Book Synopsis Is There a Risk and Return Relation? by : Suzanne G.M. Fifield
Download or read book Is There a Risk and Return Relation? written by Suzanne G.M. Fifield and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional finance theory posits that the relationship between the risk and return of stocks is positive. Furthermore, investment practice is often based on the central contention of the Capital Asset Pricing Model (CAPM) that high (low) beta stocks earn higher (lower) returns. However, this fundamental return and risk relationship is questioned by a several researchers who assert that the relationship is, in fact, negative. Consequently, a growing body of research examines the nature of the stock return-risk relationship using both market- and firm-level data. The results of this research are mixed. The purpose of this paper is to shed further light on this relationship by (i) examining both market- and firm-level price data; (ii) employing a battery of tests, including individual market, panel and quantile regressions; and (iii) analysing the nature of the relationship during periods of high and low volatility and in bull and bear markets. The results indicate that there is no single robust relationship between risk and return. Of note, our results suggest a positive relationship when returns are high and during bear markets. Furthermore, the finding of a positive relationship is stronger (i) at the market-level than the firm-level; and (ii) over long time periods. However, the analysis indicates that a negative relationship exists at low return levels, during bull markets and, more so, at the individual firm level. Overall, the results suggest that the risk-return relationship is switching in nature and is primarily driven by changing risk preferences. Notably, a positive relationship exists when macroeconomic risk plays a larger role.
Book Synopsis An Introduction to Risk and Return from Common Stocks by : Richard A. Brealey
Download or read book An Introduction to Risk and Return from Common Stocks written by Richard A. Brealey and published by MIT Press (MA). This book was released on 1969 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Analyzing the Time-Varying Stock Market Risk-Return Relation by : C. N. V. Krishnan
Download or read book Analyzing the Time-Varying Stock Market Risk-Return Relation written by C. N. V. Krishnan and published by . This book was released on 2011 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the stock market risk-return relation over the period from 1927 to 2005. We empirically implement the Intertemporal Capital Asset Pricing Model (ICAPM) using a cross-section of stock and bond portfolios, and allow for the market price of risk to be time-varying. We show that including bond portfolios in the estimation not only significantly changes the time-series estimates of the market price of risk, but also makes the correlation between conditional stock-market variance and the variance component of expected market return positive.
Book Synopsis A Risk Return Relation in Stock Markets by : Napon Hongsakulvasu
Download or read book A Risk Return Relation in Stock Markets written by Napon Hongsakulvasu and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I propose a new semi-parametric GARCH-in-Mean model. Since many empirical papers have the mix results on the risk-return relation, the cause of problem may come from the misspecification of conditional mean equation or conditional variance equation or both of them. My model uses non-parametric estimation in conditional mean equation and semi-parametric estimation in conditional variance equation which allows the non-linear risk return relation in conditional mean equation and allows the non-linear relation between the volatility and the cumulative sum of exponentially weighted past returns. Three parameters on my model are GARCH parameter, the leverage effect parameter and leptokurtic parameter. I also extend my model to include four exogenous variables, dividend yield, term spread, default spread and momentum into conditional mean equation by using additive model which allows each variable to have non-linear relation with the return. An empirical study on S&P 500 suggests that risk has a small affect on market return. However, when four exogenous variables are added to the model, my model shows that the risk-return relation has a positive hump shape. The electronic version of this dissertation is accessible from http://hdl.handle.net/1969.1/155545
Book Synopsis Irrational Exuberance Reconsidered by : Mathias Külpmann
Download or read book Irrational Exuberance Reconsidered written by Mathias Külpmann and published by Springer Science & Business Media. This book was released on 2013-03-20 with total page 233 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mathias Külpmann presents a framework to evaluate whether the stock market is in line with underlying fundamentals. The new and revised edition offers an up to date introduction to the controversy between rational asset pricing and behavioural finance. Empirical evidence of stock market overreaction are investigated within the paradigms of rational asset pricing and behavioural finance. Although this monograph will not promise the reader to become a millionaire, it offers a road to obtain a deeper understanding of the forces which drive stock returns. It should be of interest to anyone interested in what drives performance in the stock market.
