Expected stock returns and volatility

doi:10.1016/0304-405X(87)90026-2

Journal of Financial Economics

Volume 19, Issue 1, September 1987, Pages 3-29

https://doi.org/10.1016/0304-405X(87)90026-2 Get rights and content

Abstract

This paper examines the relation between stock returns and stock market volatility. We find evidence that the expected market risk premium (the expected return on a stock portfolio minus the Treasury bill yield) is positively related to the predictable volatility of stock returns. There is also evidence that unexpected stock market returns are negatively related to the unexpected change in the volatility of stock returns. This negative relation provides indirect evidence of a positive relation between expected risk premiums and volatility.

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^☆: We have received helpful comments from Joel Hasbrouck, Donald Keim, John Long, Charles Plosser, Jay Shanken, Lawrence Summers, Jerold Warner, Larry Weiss, Jerold Zimmerman, an anonymous referee, and especially Eugene Fama. The Batterymarch Financial Management Corporation, the Center for Research in Security Prices, the Foundation for Research in Economics and Education, and the Managerial Economics Research Center provided support for this project.

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Expected stock returns and volatility☆

Abstract

Journal of Financial Economics

Journal of Financial Economics

Econometrica

Journal of Business & Economics Statistics

Studies of stock price volatility changes

The capital asset pricing model: Some empirical tests

Generalized autoregressive conditional heteroskedasticity

Journal of Econometrics

A capital asset pricing model with time varying covariances

Empirical tests of the consumption-oriented CAPM

A simple econometric approach for utility-based asset pricing models

Journal of Finance

Economic forces and the stock market: Testing the APT and alternative asset pricing theories

Journal of Business

Autoregressive conditional heteroskedasticity with estimates of the variance of United Kingdom inflation

Econometrica

Estimating time varying risk premia in the term structure: The ARCH-M model

Econometrica

Risk, return, and equilibrium: Empirical tests

Journal of Political Economy