Risk-return trade-off and serial correlation: Do volume and volatility matter?

Jyri Kinnunen

Journal of Financial Markets, 2014, vol. 20, issue C, 1-19

Abstract: I investigate a relation between the conditional mean and variance of the aggregate stock return using a model that allows the relevance of the risk-return trade-off and autocorrelation to change over time. The model detects a positive risk-return relation, but the importance of the risk-return relation fluctuates with the level of information flow, measured by volatility. During low-volatility periods, market-wide persistence in returns increases, leading to a failure of the pure risk-return explanation for expected returns. This offers an explanation as to why detection of a positive risk-return trade-off has been challenging, while autocorrelation has been a robust finding.

Keywords: ICAPM; Risk-return trade-off; Volume; Volatility; Autocorrelation (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386418114000226
Full text for ScienceDirect subscribers only

Related works:
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:eee:finmar:v:20:y:2014:i:c:p:1-19

DOI: 10.1016/j.finmar.2014.04.003

Access Statistics for this article

Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Catherine Liu ().