Risk and Return: A Revisit Using Expected Returns

Risk and Return: A Revisit Using Expected Returns This paper uses direct estimates of expected returns to examine the link between standard measures of financial risk and investor return requirements. The results show that systematic risk commands a significant positive risk premium, much larger than found using historical returns as proxies for expectations. Furthermore, there are nonlinearities in the relationship between risk and return. Finally, we show that expected returns and risk premiums in the equity markets change over time and that these changes are related to changes in interest rates on U.S. government obligations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Financial Review Wiley

Risk and Return: A Revisit Using Expected Returns

Financial Review, Volume 28 (1) – Feb 1, 1993

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Publisher
Wiley
Copyright
Copyright © 1993 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0732-8516
eISSN
1540-6288
D.O.I.
10.1111/j.1540-6288.1993.tb01341.x
Publisher site
See Article on Publisher Site

Abstract

This paper uses direct estimates of expected returns to examine the link between standard measures of financial risk and investor return requirements. The results show that systematic risk commands a significant positive risk premium, much larger than found using historical returns as proxies for expectations. Furthermore, there are nonlinearities in the relationship between risk and return. Finally, we show that expected returns and risk premiums in the equity markets change over time and that these changes are related to changes in interest rates on U.S. government obligations.

Journal

Financial ReviewWiley

Published: Feb 1, 1993

References

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