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Explaining the Risk/Return Mismatch of the MSCI China Index: A Systematic Risk Analysis

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  • Priscilla Liang

    (California State University, Channel Islands, Sage Hall 210, One University Drive, Camarillo, CA 93012, USA)

Abstract

This study examines a risk/return mismatch of the MSCI China Index, which has offered investors low returns and high volatility, yet remains a favorite within the global investors' portfolio. The paper suggests several insights, both from behavioral and traditional finance perspectives, to explain this mismatch. An international risk decomposition model is applied to separate the total risk of China's index return into global systematic risks, regional systematic risks and country specific risks. It suggests the index's lower than average systematic risk might be one of the explanations for its risk/return mismatch. The study also finds that the China Index's systematic risks, both global and regional, have been increasing, but more so at the global level.

Suggested Citation

  • Priscilla Liang, 2007. "Explaining the Risk/Return Mismatch of the MSCI China Index: A Systematic Risk Analysis," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 63-80.
    • Handle: RePEc:wsi:rpbfmp:v:10:y:2007:i:01:n:s0219091507000982
    DOI: 10.1142/S0219091507000982
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    References listed on IDEAS

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    1. Palandri, Alessandro, 2009. "Sequential conditional correlations: Inference and evaluation," Journal of Econometrics, Elsevier, vol. 153(2), pages 122-132, December.
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    Cited by:

    1. Tobias Schlueter & Soenke Sievers, 2014. "Determinants of market beta: the impacts of firm-specific accounting figures and market conditions," Review of Quantitative Finance and Accounting, Springer, vol. 42(3), pages 535-570, April.
    2. Tienyu Hwang & Simon Gao & Heather Owen, 2014. "Markowitz efficiency and size effect: evidence from the UK stock market," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 721-750, November.
    3. Su, Tong & Zhang, Zuopeng (Justin) & Lin, Boqiang, 2022. "Green bonds and conventional financial markets in China: A tale of three transmission modes," Energy Economics, Elsevier, vol. 113(C).

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    More about this item

    Keywords

    Asset return; systematic risk; world CAPM; JEL Classification: G12; JEL Classification: G14; JEL Classification: G18; JEL Classification: G20;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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