The Risk Return Relationship: Evidence from Index Returns and Realised Variances

41 Pages Posted: 22 Aug 2019

See all articles by Minxian Yang

Minxian Yang

UNSW Australia Business School, School of Economics

Date Written: August 20, 2019

Abstract

This paper provides new evidence on the risk return relationship by jointly analysing index return and realised variance (RV) series. It is argued that the contemporaneous correlation (CC) between the return and RV, which has been largely overlooked in the literature, is a crucial component in the empirical risk return relationship. Based on daily and weekly time series from 21 international market indices, the findings support the predictions of the risk premium, volatility feedback and statistical balance. However, little support is found for the short-memory-volatility-component risk premium. It is argued that the empirical risk return relationship is primarily shaped by the CC and the vastly-different autocorrelation structures of the return and RV.

Keywords: risk premium, volatility feedback, return predictability, statistical balance, normal variance-mean mixture, realised variance model

JEL Classification: C32, G10, G13

Suggested Citation

Yang, Minxian, The Risk Return Relationship: Evidence from Index Returns and Realised Variances (August 20, 2019). UNSW Business School Research Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3439959 or http://dx.doi.org/10.2139/ssrn.3439959

Minxian Yang (Contact Author)

UNSW Australia Business School, School of Economics ( email )

School of Economics
The University of New South Wales
Sydney, NSW NSW 2052
Australia
93853353 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
27
Abstract Views
228
PlumX Metrics