IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v14y1979i02p421-441_00.html
   My bibliography  Save this article

The Risk-Return Relationship and Stock Prices

Author

Listed:
  • Bachrach, Benjamin
  • Galai, Dan

Abstract

According to the current state of knowledge in finance, the expected rate of return adjusted for risk is independent of the stock price. The basic proposition of the capital asset pricing model (CAPM) is that the expected rate of return for each security is a function of the “risk†of that security, and that this risk is measured by the contribution of the security to the variability of the market portfolio. The implication of the CAPM is that knowing the price of a security perse will add nothing to predicting its expected rate of return.

Suggested Citation

  • Bachrach, Benjamin & Galai, Dan, 1979. "The Risk-Return Relationship and Stock Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(2), pages 421-441, June.
  • Handle: RePEc:cup:jfinqa:v:14:y:1979:i:02:p:421-441_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000005391/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. William D. Brown, Jr & Ray J. Pfeiffer, Jr, 2008. "Do Investors Under-React to Information in Analysts' Earnings Forecasts?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7-8), pages 889-911.
    2. Söhnke M. Bartram & Mark Grinblatt & Yoshio Nozawa, 2020. "Book-to-Market, Mispricing, and the Cross-Section of Corporate Bond Returns," NBER Working Papers 27655, National Bureau of Economic Research, Inc.
    3. Fan, Xiaoyun & Wang, Yedong & Wang, Daoping, 2021. "Network connectedness and China's systemic financial risk contagion——An analysis based on big data," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    4. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, June.
    5. Saban Celik, 2012. "Theoretical and Empirical Review of Asset Pricing Models:A Structural Synthesis," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 141-178.
    6. Rösch, Christoph G. & Kaserer, Christoph, 2014. "Reprint of: Market liquidity in the financial crisis: The role of liquidity commonality and flight-to-quality," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 152-170.
    7. Geertsema, Paul & Lu, Helen, 2019. "Revisiting the price effect in US stocks," Finance Research Letters, Elsevier, vol. 30(C), pages 139-144.
    8. Rösch, Christoph G. & Kaserer, Christoph, 2013. "Market liquidity in the financial crisis: The role of liquidity commonality and flight-to-quality," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2284-2302.
    9. Graeme G. Acheson & John D. Turner, 2011. "Investor behaviour in a nascent capital market: Scottish bank shareholders in the nineteenth century," Economic History Review, Economic History Society, vol. 64(1), pages 188-213, February.
    10. Bruno S. Frey & Reiner Eichenberger, 1989. "Should Social Scientists Care about Choice Anomalies?," Rationality and Society, , vol. 1(1), pages 101-122, July.
    11. Adam Zaremba & Rados³aw ¯mudziñski, 2014. "The Low Price Effect On The Polish Market," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(1), pages 69-85, June.
    12. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:14:y:1979:i:02:p:421-441_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.