Title

Revisiting the relationship between risk and return

Source of Publication

Review of Quantitative Finance and Accounting

Abstract

© 2013, Springer Science+Business Media New York. The literature on the fundamental relationship between risk and return is largely inconclusive. We show that accounting for structural breaks and utilizing a large sample is required for correctly estimating this risk-return tradeoff within the GARCH framework. The above two factors affect the risk-return tradeoff via volatility persistence, a parameter totally ignored in the current debate. We show this with the help of Monte Carlo simulations and then validate our results empirically using US stock market data. The results have important economic implications and will help in resolving some inconsistencies in the literature.

Document Type

Article

First Page

25

Last Page

40

Publication Date

1-1-2013

DOI

10.1007/s11156-013-0397-1

Author First name, Last name, Institution

Farooq Malik, Zayed University

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