Revisiting the relationship between risk and return
Source of Publication
Review of Quantitative Finance and Accounting
© 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.
Springer Science and Business Media, LLC
GARCH, Risk, Structural breaks, Volatility
Malik, Farooq, "Revisiting the relationship between risk and return" (2013). All Works. 2981.
Indexed in Scopus