Risk-Return Analysis and Stock Markets

Raj S. Dhankar ()
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Raj S. Dhankar: University of Delhi

Chapter Chapter 9 in Risk-Return Relationship and Portfolio Management, 2019, pp 153-162 from Springer

Abstract: Abstract Efficient capital market theory postulates the random walkRandom walk behaviour of stock market, i.e. riskRisk and return are normally distributed. Capital asset pricing modelsCapital Asset Pricing Model (CAPM) , which assume the normality in riskRisk and return, deal with how risky securities are valued in an efficient capital market. The present study applies a set of parametricParametric and non-parametricNon-parametric tests to examine the normality of return and riskRisk of daily, weekly, monthly and annual returns in the Indian stock marketIndian stock market . The study examines the prices of the Bombay Stock Exchange (BSE)-listed indices: Sensex, BSE 100BSE 100 and BSE 500 for the period 1996–2006, and three sub-periods (January 1996–December 1999, January 2000–December 2002, January 2003–December 2006) and reports the significant findings. The returns are negatively skewed for all the indices over the period. Asymmetry is found in riskRisk and return in case of daily and weekly returns. Monthly and annual returns, however, are found normally distributed for all three indices over the period of time. These findings bring out the importance of time horizon in investment strategy for the Indian stock marketIndian stock market .

Date: 2019
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DOI: 10.1007/978-81-322-3950-5_9

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