Investigating ICAPM in International Futures Markets

Review of Futures Markets, 2011, 19(3), 195-216

18 Pages Posted: 15 Jul 2009 Last revised: 12 Dec 2012

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

K. Ozgur Demirtas

Sabanci University Graduate School of Management

Kishore Tandon

CUNY Baruch College - Zicklin School of Business

Date Written: June 15, 2010

Abstract

This paper investigates the significance of an intertemporal relation between expected return and risk for the futures markets. The paper not only takes a look at the domestic futures, but the relationship between conditional risk and return is examined in international futures markets as well. We test the significance of a daily risk-return tradeoff in stock index futures for G8 countries (US, Canada, UK, Germany, France, Italy, Japan, and Australia). We use GARCH modeling with the thin-tailed normal and the fat-tailed Student t, generalized error, and generalized t distributions to simultaneously generate risk measures and forecast expected futures returns. The maximum likelihood parameter estimates indicate that the relation between risk and return is flat in futures markets. This result is robust across eight different countries..

Keywords: stock index futures, international futures markets, risk-return tradeoff, GARCH-in-mean.

Suggested Citation

Bali, Turan G. and Demirtas, K. Ozgur and Tandon, Kishore, Investigating ICAPM in International Futures Markets (June 15, 2010). Review of Futures Markets, 2011, 19(3), 195-216, Available at SSRN: https://ssrn.com/abstract=1434431 or http://dx.doi.org/10.2139/ssrn.1434431

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

K. Ozgur Demirtas (Contact Author)

Sabanci University Graduate School of Management ( email )

Sabanci University, School of Management
Orhanli Tuzla
Orhanlı-Tuzla, Istanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

Kishore Tandon

CUNY Baruch College - Zicklin School of Business ( email )

55 Lexington Avenue
New York, NY 10010
United States
(646) 312-3468 (Phone)
(646) 312-3451 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
255
Abstract Views
1,637
rank
149,619
PlumX Metrics