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Risky Relations - A study of the relationship between expected stock returns and volatility on the international market

Cabak, Alexandra LU and Bergmark, Sara (2010) NEKM03 20101
Department of Economics
Abstract
This econometric study examines the relationship between expected returns and volatility in ten industrialized countries. It includes three models; GARCH-M, EGARCH-M and the PARCH-M model. Furthermore, it investigates if the results change with the use of several time intervals, different data frequency and the inclusion of macroeconomic variables into the models. The results provide evidence that no significant relationship between volatility and expected return could be identified on the international market in the long term. In the short term, a weak and unstable relationship could be found in some markets. Furthermore, the results suggest that there generally exists a positive short term relationship and a negative long term... (More)
This econometric study examines the relationship between expected returns and volatility in ten industrialized countries. It includes three models; GARCH-M, EGARCH-M and the PARCH-M model. Furthermore, it investigates if the results change with the use of several time intervals, different data frequency and the inclusion of macroeconomic variables into the models. The results provide evidence that no significant relationship between volatility and expected return could be identified on the international market in the long term. In the short term, a weak and unstable relationship could be found in some markets. Furthermore, the results suggest that there generally exists a positive short term relationship and a negative long term relationship between expected returns and volatility. This paper also found evidence that volatility explains the expected return in the long term in a greater extent than it does on the short term. (Less)
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author
Cabak, Alexandra LU and Bergmark, Sara
supervisor
organization
course
NEKM03 20101
year
type
H1 - Master's Degree (One Year)
subject
keywords
Expected stock return, volatility, GARCH-M, PARCH-M, EGARCH-M
language
English
id
1614679
date added to LUP
2010-06-14 14:33:30
date last changed
2010-06-14 14:33:30
@misc{1614679,
  abstract     = {This econometric study examines the relationship between expected returns and volatility in ten industrialized countries. It includes three models; GARCH-M, EGARCH-M and the PARCH-M model. Furthermore, it investigates if the results change with the use of several time intervals, different data frequency and the inclusion of macroeconomic variables into the models. The results provide evidence that no significant relationship between volatility and expected return could be identified on the international market in the long term. In the short term, a weak and unstable relationship could be found in some markets. Furthermore, the results suggest that there generally exists a positive short term relationship and a negative long term relationship between expected returns and volatility. This paper also found evidence that volatility explains the expected return in the long term in a greater extent than it does on the short term.},
  author       = {Cabak, Alexandra and Bergmark, Sara},
  keyword      = {Expected stock return,volatility,GARCH-M,PARCH-M,EGARCH-M},
  language     = {eng},
  note         = {Student Paper},
  title        = {Risky Relations - A study of the relationship between expected stock returns and volatility on the international market},
  year         = {2010},
}