The Risk Return Relationship: Evidence from Index Return and Realised Variance Series

Minxian Yang

No 2014-16, Discussion Papers from School of Economics, The University of New South Wales

Abstract: The risk return relationship is analysed in bivariate models for return and realised variance(RV) series. Based on daily time series from 21 international market indices for more than 13 years (January 2000 to February 2013), the empirical findings support the arguments of risk return tradeoff, volatility feedback and statistical balance. It is reasoned that the empirical risk return relationship is primarily shaped by two important data features: the negative contemporaneous correlation between the return and RV, and the difference in the autocorrelation structures of the return and RV.

Keywords: risk premium; volatility feedback; return predictability; realised variance model; statistical balance (search for similar items in EconPapers)
JEL-codes: C32 C52 G10 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2014-03
New Economics Papers: this item is included in nep-fmk, nep-ger and nep-rmg
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