The Intertemporal Relation between Risk and Returns in Australia

27 Pages Posted: 25 Aug 2008

See all articles by Bin Li

Bin Li

Griffith University - Department of Accounting, Finance and Economics

Date Written: January 15, 2008

Abstract

We explore the intertemporal relation between the conditional mean and the conditional variance of the industry portfolio returns and Fama-French 25 Size/Book-to-Market portfolio returns in Australia using a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model. We estimate a portfolio's conditional covariance with the market and test whether the conditional covariance can help predict the time-variation in the portfolio's expected returns. Our results show that there is no significant relation between asset returns and market returns. We also examine asset returns with size and value factors, and we find that size and value factors only matter for the Size/Book-to-Market portfolios, but not for the industry portfolios. Lastly, we examine the role of the macroeconomic variables in determining the time-variation of asset returns, and there is no evidence of the relationship between asset returns and the macroeconomic variables.

Keywords: Risk-Return Trade-off, Volatility Models, ICAPM, Australian Market

JEL Classification: G12, G13, C51

Suggested Citation

Li, Bin, The Intertemporal Relation between Risk and Returns in Australia (January 15, 2008). 21st Australasian Finance and Banking Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1252070 or http://dx.doi.org/10.2139/ssrn.1252070

Bin Li (Contact Author)

Griffith University - Department of Accounting, Finance and Economics ( email )

Nathan
Brisbane, Queensland, 4111
Australia

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

Paper statistics

Downloads
80
Abstract Views
938
rank
365,773
PlumX Metrics