The relationship between stock returns and volatility in international stock markets

The Relationship between Stock Returns and Volatility in the Seventeen Largest International Stock Markets: A Semi-Parametric Approach

“…Given the fact that the semiparametric specification fits better the data this study tends to support the claim that volatility is negatively correlated with returns. Notice that the above results are consistent with the empirical findings of [10,31,33], but contradict empirical findings of an insignificant relationship reported in [29,30,34]. …”

Pricing volatility of stock returns with volatile and persistent components

“…Stock returns, rather than excess stock returns, are used in the analysis to conduct the analysis due to lack of information on the risk free rate for several markets during the sample period. This practice is consistent with Li et al (2005), Shin (2005), and other researchers (i.e., Baillie and DeGennaro 1990;Nelson 1991;and Choudhry 1996) who show that using returns instead of excess returns produces little difference in estimation and inference in empirical studies. Table 2 reviews several points of interest.…”

“…By adopting Heston's (1993) popular one-factor stochastic volatility model, Bollerslev and Zhou (2006) show how the sign and magnitude of the linear relationship between returns and volatility depend significantly on model parameters and the market price of volatility risk. In earlier work, Li et al (2005) also report that a misspecification in the parametric model of volatility dynamics may cause a distorted relation. They implement both parametric and semiparametric approaches to model volatility dynamics and estimate the parameter to volatility in a return-generating process for 12 stock markets.…”

Pricing of risk and volatility dynamics on an emerging stock market: evidence from both aggregate and disaggregate data

“…see Balios, 2008;Campbell & Hentschel, 1991;Dimitriou & Simos, 2011;Fraser & Power, 1997;French, Schwert, & Stambaugh, 1987;Glosten, Jagannathan, & Runkle, 1993;Hansson & Hordahl, 1998;Jiranyakul, 2011;Koutmos, Negakis, & Theodossiou, 1993;Lanne & Saikkonen, 2004;Lebaron, 1989;Lettau & Ludvigson, 2010;Li, Yang, & Hsiao, 2005;and Mandimika & Chinzara, 2012), ascribed mixed evidence regarding the existence of risk premium in the stock markets of Australia, the USA, Europe, Asia and Africa by applying the GARCH-M model. For instance, Li et al (2005) concluded negative risk premium for six out of 12 markets, and so does by Mandimika and Chinzara (2012) while examining the South African stock market. However, on the contrary, the study of French et al (1987) and Yu and Hassan (2008) in the Middle East and North African region and Jiranyakul (2011) in Thailand accredited a positive risk-return trade-off declaring a positive risk premium.…”