Advanced Search
MyIDEAS: Login to save this article or follow this journal

Stock Returns and Risk: Evidence from Quantile

Contents:

Author Info

  • Thomas C. Chiang

    ()
    (Department of Finance, Drexel University, 33rd and Chestnut Streets, Philadelphia, PA 19104, USA)

  • Jiandong Li

    ()
    (Chinese Academy of Finance and Development (CAFD), Central University of Finance and Economics (CUFE), China)

Registered author(s):

    Abstract

    This paper employs weighted least squares to examine the risk-return relation by applying high-frequency data from four major stock indexes in the US market and finds some evidence in favor of a positive relation between the mean of the excess returns and expected risk. However, by using quantile regressions, we find that the risk-return relation moves from negative to positive as the returns’ quantile increases. A positive risk-return relation is valid only in the upper quantiles. The evidence also suggests that intraday skewness plays a dominant role in explaining the variations of excess returns.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.mdpi.com/1911-8074/5/1/20/pdf
    Download Restriction: no

    File URL: http://www.mdpi.com/1911-8074/5/1/20/
    Download Restriction: no

    Bibliographic Info

    Article provided by MDPI, Open Access Journal in its journal Journal of Risk and Financial Management.

    Volume (Year): 5 (2012)
    Issue (Month): 1 (December)
    Pages: 20-58

    as in new window
    Handle: RePEc:gam:jjrfmx:v:5:y:2012:i:1:p:20-58:d:28408

    Contact details of provider:
    Web page: http://www.mdpi.com/

    Related research

    Keywords: Risk-return tradeoff; Volatility; Intraday skewness; Quantile Regression; High-frequency data;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, American Finance Association, vol. 31(4), pages 1085-1100, September.
    2. David K. Backus & Allan W. Gregory, 1992. "Theoretical Relations Between Risk Premiums and Conditional Variances," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 92-18a, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Francis X. Diebold, 2004. "The Nobel Memorial Prize for Robert F. Engle," PIER Working Paper Archive 04-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. Campbell R. Harvey & Akhtar Siddique, 2000. "Conditional Skewness in Asset Pricing Tests," Journal of Finance, American Finance Association, American Finance Association, vol. 55(3), pages 1263-1295, 06.
    5. Ghysels, Eric & Santa-Clara, Pedro & Valkanov, Rossen, 2005. "There is a risk-return trade-off after all," Journal of Financial Economics, Elsevier, Elsevier, vol. 76(3), pages 509-548, June.
    6. Harvey, Campbell R., 2001. "The specification of conditional expectations," Journal of Empirical Finance, Elsevier, Elsevier, vol. 8(5), pages 573-637, December.
    7. Campbell, John, 1987. "Stock Returns and the Term Structure," Scholarly Articles 3207699, Harvard University Department of Economics.
    8. Turner, C.M. & Startz, R. & Nelson, C.R., 1989. "The Markov Model Of Heteroskedasticity, Risk And Learning In The Stock Market," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 89-01, Department of Economics at the University of Washington.
    9. Robert C. Merton, 1980. "On Estimating the Expected Return on the Market: An Exploratory Investigation," NBER Working Papers 0444, National Bureau of Economic Research, Inc.
    10. Andrew W. Lo & Craig A. MacKinlay, . "An Econometric Analysis of Nonsyschronous-Trading," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 19-89, Wharton School Rodney L. White Center for Financial Research.
    11. Baillie, R.T. & Degennaro, R.P., 1988. "Stock Returns And Volatility," Papers, Michigan State - Econometrics and Economic Theory 8803, Michigan State - Econometrics and Economic Theory.
    12. Paul Harrison & Harold H. Zhang, 1999. "An Investigation Of The Risk And Return Relation At Long Horizons," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 399-408, August.
    13. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521608275, 9.
    14. John Y. Campbell & Ludger Hentschel, 1991. "No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns," NBER Working Papers 3742, National Bureau of Economic Research, Inc.
    15. Whitelaw, Robert F, 1994. " Time Variations and Covariations in the Expectation and Volatility of Stock Market Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 49(2), pages 515-41, June.
    16. Sentana, Enrique & Wadhwani, Sushil B, 1992. "Feedback Traders and Stock Return Autocorrelations: Evidence from a Century of Daily Data," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(411), pages 415-25, March.
    17. Lin Peng & Turan G. Bali, 2006. "Is there a risk-return trade-off? Evidence from high-frequency data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(8), pages 1169-1198.
    18. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, Elsevier, vol. 19(1), pages 3-29, September.
    19. Fratzscher, Marcel, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series, European Central Bank 0048, European Central Bank.
    20. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 33-50, January.
    21. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
    22. Li, W K & Ling, Shiqing & McAleer, Michael, 2002. " Recent Theoretical Results for Time Series Models with GARCH Errors," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 16(3), pages 245-69, July.
    23. Sheppard, Kevin & Cappiello, Lorenzo & Engle, Robert F., 2003. "Asymmetric dynamics in the correlations of global equity and bond returns," Working Paper Series, European Central Bank 0204, European Central Bank.
    24. Antoniou, Antonios & Koutmos, Gregory & Pericli, Andreas, 2005. "Index futures and positive feedback trading: evidence from major stock exchanges," Journal of Empirical Finance, Elsevier, Elsevier, vol. 12(2), pages 219-238, March.
    25. Chiang, Thomas C. & Li, Jiandong & Tan, Lin, 2010. "Empirical investigation of herding behavior in Chinese stock markets: Evidence from quantile regression analysis," Global Finance Journal, Elsevier, vol. 21(1), pages 111-124.
    26. Brandt, Michael W. & Kang, Qiang, 2004. "On the relationship between the conditional mean and volatility of stock returns: A latent VAR approach," Journal of Financial Economics, Elsevier, Elsevier, vol. 72(2), pages 217-257, May.
    27. Breen, William & Glosten, Lawrence R & Jagannathan, Ravi, 1989. " Economic Significance of Predictable Variations in Stock Index Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 44(5), pages 1177-89, December.
    28. John T. Scruggs, 1998. "Resolving the Puzzling Intertemporal Relation between the Market Risk Premium and Conditional Market Variance: A Two-Factor Approach," Journal of Finance, American Finance Association, American Finance Association, vol. 53(2), pages 575-603, 04.
    29. James W. Taylor, 2008. "Using Exponentially Weighted Quantile Regression to Estimate Value at Risk and Expected Shortfall," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 6(3), pages 382-406, Summer.
    30. Pagan, Adrian & Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(2), pages 87-105, April.
    31. Jonathan H. Wright & Tim Bollerslev, 1999. "High frequency data, frequency domain inference and volatility forecasting," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 649, Board of Governors of the Federal Reserve System (U.S.).
    32. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, Econometric Society, vol. 41(5), pages 867-87, September.
    33. Lundblad, Christian, 2007. "The risk return tradeoff in the long run: 1836-2003," Journal of Financial Economics, Elsevier, Elsevier, vol. 85(1), pages 123-150, July.
    34. Harvey, Campbell R. & Siddique, Akhtar, 1999. "Autoregressive Conditional Skewness," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 34(04), pages 465-487, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:5:y:2012:i:1:p:20-58:d:28408. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XML Conversion Team).

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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