Stock Market Risk and Return: An Equilibrium Approach

Robert F Whitelaw

The Review of Financial Studies, 2000, vol. 13, issue 3, 521-47

Abstract: Empirical evidence that expected stock returns are weakly related to volatility at the market level appears to contradict the intuition that risk and return are positively related. We investigate this issue in a general equilibrium exchange economy characterized by a regime-switching consumption process with time-varying transition probabilities between regimes. When estimated using consumption data, the model generates a complex, non-linear and time-varying relation between expected returns and volatility, duplicating the salient features of the risk/return trade-off in the data. The results emphasize the importance of time-varying investment opportunities and highlight the perils of relying on intuition from static models. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (130)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:oup:rfinst:v:13:y:2000:i:3:p:521-47

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().