Stock Returns and Volatility

Posted: 26 Feb 2003 Last revised: 31 Mar 2015

See all articles by Ramon P. DeGennaro

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

Richard Baillie

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 1990

Abstract

Most asset pricing models postulate a positive relationship between a stock portfolio's expected returns and risk, which is often modeled by the variance of the asset price. This paper uses GARCH-in-mean models to examine the relationship between mean returns on a stock portfolio and its conditional variance or standard deviation.

After estimating a variety of models from daily and monthly portfolio return data we conclude that any relationship between mean returns and own variance or standard deviation is weak. The results suggest that investors consider some other risk measure to be more important than the variance of portfolio returns.

Keywords: stock returns, volatility, risk, expected return

JEL Classification: G0, G1, G2, M5, C3

Suggested Citation

DeGennaro, Ramon P. and Baillie, Richard, Stock Returns and Volatility (January 1990). Journal of Financial and Quantitative Analysis (JFQA), Vol. 25, No. 2, 1990. Available at SSRN: https://ssrn.com/abstract=380520

Ramon P. DeGennaro (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)

Richard Baillie

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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