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On the Risk-Return Tradeoff in the Stock Exchange of Thailand: New Evidence

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  • Jiranyakul, Komain

Abstract

This paper provides new evidence on the positive risk-return tradeoff in the Thai stock market using monthly data. An AR(p)-GARCH-in-mean model is applied to the data from January 1981 to December 2009. Since stock prices and dividend series are not cointegrated, the excess returns are separately calculated as capital gain and dividend excess returns. By incorporating the dummy variables that capture the impact of the 1987 global stock market crash and the Asian 1997 financial crisis in the conditional variance equations, the results show that the persistence of excess return volatility is reduced. It is also found that there exists a positive risk-return tradeoff in the stock market in both capital gain and dividend excess returns. The size of the risk-return tradeoff is higher and more highly significant when the market dividend yield is used to obtain the excess return. Therefore, dividend is more important than capital gain. In addition, the impact of volatility on excess returns is not asymmetric implying that the AR(p)-GARCH-in-mean model is sufficient to detect the positive risk-return tradeoff.

Suggested Citation

  • Jiranyakul, Komain, 2011. "On the Risk-Return Tradeoff in the Stock Exchange of Thailand: New Evidence," MPRA Paper 45583, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45583
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    Cited by:

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    2. Faisal Khan & Sharif Ullah Jan, 2020. "New Evidence on the Role of Size Effect in Determining the Pricing of Risk, Volatility Dynamics, and Economic Exposure of Firm Returns," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 9(3), pages 1-25, July.
    3. Mohanty, Roshni & P, Srinivasan, 2014. "The Time-Varying Risk and Return Trade Off in Indian Stock Markets," MPRA Paper 55660, University Library of Munich, Germany.
    4. Aeggarchat Sirisankanan, 2014. "Rethinking Thailand¡¯S Growth Policies," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 39(2), pages 51-73, June.
    5. Faisal Khan & Saif-Ur-Rehman Khan & Hashim Khan, 2016. "Pricing of Risk, Various Volatility Dynamics and Macroeconomic Exposure of Firm Returns: New Evidence on Age Effect," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 551-561.
    6. Hao Liu & Shihan Shen & Tianyi Wang & Zhuo Huang, 2016. "Revisiting the risk-return relation in the Chinese stock market: Decomposition of risk premium and volatility feedback effect," China Economic Journal, Taylor & Francis Journals, vol. 9(2), pages 140-153, May.

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    More about this item

    Keywords

    Risk-return; Emerging stock market; GARCH-M;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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