The Relationship between Volatility and Expected Returns: Some Evidence for Australia

Ali F. Darrat, Bin Li and Omar Benkato
Additional contact information
Ali F. Darrat: College of Business, Louisiana Tech University, Ruston, U.S.A.
Bin Li: Griffith Business School, Griffith University, Australia
Omar Benkato: Miller College of Business, Ball State University, U.S.A.

International Journal of Business and Economics, 2011, vol. 10, issue 1, 27-43

Abstract: We explore the intertemporal relation between the conditional mean and the conditional variance of industry portfolio returns and the Fama-French 25 size/book-to-market portfolio returns using data from Australia. We estimate the portfolio conditional covariance with the market and test whether it can predict the time-variation in the portfolio expected returns. We find strong and consistent evidence of a positive risk aversion relation, implying that the market returns do carry a positive risk premium in the Australian market. Our results suggest that the value factor is relevant for determining the variation of asset returns on both the industry portfolios and the size/book-to-market portfolios.

Keywords: risk-return trade-offs; volatility models; ICAPM; Australian market (search for similar items in EconPapers)
JEL-codes: C51 G12 G13 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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