Estimating and Analyzing the Risk-Return Relationship in the Stock Market
(2012) NEKP01 20121Department of Economics
- Abstract (Swedish)
- The main purpose of this thesis is to estimate and investigate the relationship between risk and expected return in the stock market within a time-series context. The model is based on the intertemporal capital asset pricing model (ICAPM), and the method of log-linearization is implemented in the analysis. As a result, two main components of expected returns, the risk and hedge components are identified separately. The major findings agree with the recent literature: First, the estimated coefficient of relative risk aversion appears to be positive, statistically significant, and large in magnitude. Second, changes in investment opportunities and stock market volatility affect expected returns on a portfolio significantly. And third, there... (More)
- The main purpose of this thesis is to estimate and investigate the relationship between risk and expected return in the stock market within a time-series context. The model is based on the intertemporal capital asset pricing model (ICAPM), and the method of log-linearization is implemented in the analysis. As a result, two main components of expected returns, the risk and hedge components are identified separately. The major findings agree with the recent literature: First, the estimated coefficient of relative risk aversion appears to be positive, statistically significant, and large in magnitude. Second, changes in investment opportunities and stock market volatility affect expected returns on a portfolio significantly. And third, there is a negative correlation between the portfolio risk and hedge components. Therefore, the coefficient on the risk component of expected returns is downward biased when the hedge component is omitted from the model. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2607946
- author
- Mujiri, Giorgi LU
- supervisor
- organization
- course
- NEKP01 20121
- year
- 2012
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- expected return, The risk-return relationship, the risk component, the hedge component, implied volatility.
- language
- English
- id
- 2607946
- date added to LUP
- 2012-06-15 09:30:17
- date last changed
- 2012-06-15 09:30:17
@misc{2607946, abstract = {{The main purpose of this thesis is to estimate and investigate the relationship between risk and expected return in the stock market within a time-series context. The model is based on the intertemporal capital asset pricing model (ICAPM), and the method of log-linearization is implemented in the analysis. As a result, two main components of expected returns, the risk and hedge components are identified separately. The major findings agree with the recent literature: First, the estimated coefficient of relative risk aversion appears to be positive, statistically significant, and large in magnitude. Second, changes in investment opportunities and stock market volatility affect expected returns on a portfolio significantly. And third, there is a negative correlation between the portfolio risk and hedge components. Therefore, the coefficient on the risk component of expected returns is downward biased when the hedge component is omitted from the model.}}, author = {{Mujiri, Giorgi}}, language = {{eng}}, note = {{Student Paper}}, title = {{Estimating and Analyzing the Risk-Return Relationship in the Stock Market}}, year = {{2012}}, }