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| Volume 10, No. 1,
April 2011 |
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The Relationship between
Volatility and Expected Returns: |
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Some Evidence for Australia |
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Ali F. Darrat |
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College of Business, Louisiana
Tech University, Ruston, U.S.A. |
| Bin Li |
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Griffith Business School,
Griffith University, Australia |
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Omar Benkato |
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Miller College of Business,
Ball State University, U.S.A. |
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| Abstract |
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We explore the intertemporal relation
between the conditional mean and the conditional variance of
industry portfolio returns and the Fama-French 25
size/book-to-market portfolio returns using data from Australia. We
estimate the portfolio conditional covariance with the market and
test whether it can predict the time-variation in the portfolio
expected returns. We find strong and consistent evidence of a
positive risk aversion relation, implying that the market returns do
carry a positive risk premium in the Australian market. Our results
suggest that the value factor is relevant for determining the
variation of asset returns on both the industry portfolios and the
size/book-to-market portfolios. |
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Key words:
risk-return trade-offs; volatility models; ICAPM; Australian market |
| JEL
classification:
G12; G13; C51 |
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