Revisiting the relationship between risk and return

Farooq Malik ()

Review of Quantitative Finance and Accounting, 2015, vol. 44, issue 1, 25-40

Abstract: 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. Copyright Springer Science+Business Media New York 2015

Keywords: Volatility; GARCH; Structural breaks; Risk; G1 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-013-0397-1

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