Uncovering the Risk–Return Relation in the Stock Market

Hui Guo () and Robert F. Whitelaw

Journal of Finance, 2006, vol. 61, issue 3, 1433-1463

Abstract: There is ongoing debate about the apparent weak or negative relation between risk (conditional variance) and expected returns in the aggregate stock market. We develop and estimate an empirical model based on the intertemporal capital asset pricing model (ICAPM) that separately identifies the two components of expected returns, namely, the risk component and the component due to the desire to hedge changes in investment opportunities. The estimated coefficient of relative risk aversion is positive, statistically significant, and reasonable in magnitude. However, expected returns are driven primarily by the hedge component. The omission of this component is partly responsible for the existing contradictory results.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (170)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6261.2006.00877.x

Related works:
Working Paper: Uncovering the risk-return relation in the stock market (2005)
Working Paper: Uncovering the Risk-Return Relation in the Stock Market (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:61:y:2006:i:3:p:1433-1463

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().