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Risk-return relationships in the Hong Kong stock market: revisit

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  • Gordon Tang
  • Wai Cheong Shum

Abstract

This study revisits the risk-return relationships in the Hong Kong stock market using a conditional model based on up and down markets. Beta is found significantly and positively (negatively) related to realized returns when the market excess returns are positive (negative). The same results are found for unsystematic risk, total risk and kurtosis of stock returns during up and down markets when they are added to the model. Furthermore, skewness is significantly but negatively (positively) related to realized returns during up (down) markets. These results indicate that other risk measures in addition to beta are also important in pricing risky assets and investors do not hold diversified portfolios in this market. Moreover, the results support investors' preference that they prefer positive skewness but dislike kurtosis.

Suggested Citation

  • Gordon Tang & Wai Cheong Shum, 2006. "Risk-return relationships in the Hong Kong stock market: revisit," Applied Financial Economics, Taylor & Francis Journals, vol. 16(14), pages 1047-1058.
  • Handle: RePEc:taf:apfiec:v:16:y:2006:i:14:p:1047-1058
    DOI: 10.1080/09603100500426671
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    References listed on IDEAS

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    1. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W, 1994. " Contrarian Investment, Extrapolation, and Risk," Journal of Finance, American Finance Association, vol. 49(5), pages 1541-1578, December.
    2. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-1764, December.
    3. Schwert, G. William, 1983. "Size and stock returns, and other empirical regularities," Journal of Financial Economics, Elsevier, vol. 12(1), pages 3-12, June.
    4. Yue-Cheong Chan, 1997. "Multivariate testing of the capital asset pricing model in the Hong Kong stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 7(3), pages 311-316.
    5. Keith Lam, 2001. "The conditional relation between beta and returns in the Hong Kong stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 11(6), pages 669-680.
    6. Glenn Pettengill, 2002. "Payment For Risk: Constant Beta Vs. Dual-Beta Models," The Financial Review, Eastern Finance Association, vol. 37(2), pages 123-135, May.
    7. Dusan Isakov, 1999. "Is beta still alive? Conclusive evidence from the Swiss stock market," The European Journal of Finance, Taylor & Francis Journals, vol. 5(3), pages 202-212.
    8. Yiu-Wah Ho & Roger Strange & Jenifer Piesse, 2000. "CAPM anomalies and the pricing of equity: evidence from the Hong Kong market," Applied Economics, Taylor & Francis Journals, vol. 32(12), pages 1629-1636.
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    Cited by:

    1. Durand, Robert B. & Lan, Yihui & Ng, Andrew, 2011. "Conditional beta: Evidence from Asian emerging markets," Global Finance Journal, Elsevier, vol. 22(2), pages 130-153.
    2. Guermat, Cherif & Freeman, Mark C., 2010. "A net beta test of asset pricing models," International Review of Financial Analysis, Elsevier, vol. 19(1), pages 1-9, January.

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