[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/a/alu/journl/v1y2012i14p13.html
   My bibliography  Save this article

Relation Between Expected Return And Volatility At Bucharest Stock Exchange, On Business Cycle Stages

Author

Listed:
  • Viorica Chirilă
  • Ciprian Chirilă
Abstract
The study of the relation between risk and return is an important topic for investors in financial assets, which is the reason why many researchers have tackled it. It is only natural for an investor with aversion for risk, who undertakes a higher risk investment, mare to expect be rewarded accordingly, that is to achieve higher return rates. The research conducted on various stock markets had contradictory results, which means that the existence of such a connection is not certain on all stock markets. According to a new hypothesis, tackled by the latest studies, the aversion for risk of rational investors may be related to the stages of the business cycles. This paper deals with the connection between expected return and volatility at Bucharest Stock Exchange, by analyzing the return and volatility of the BET index portfolio. In order to assess this relation, we employed heteroskedastic autoregressive models. The study was conducted between January 2000 and April 2011, as well as during two sub-periods determined by different business cycle phases: economic growth and recession. The results revealed significant differences between the whole analyzed period and the economic growth and recession sub-periods. By studying BSE return throughout the analyzed period, we conclude that there is no relationship between expected return and risk, whereas volatility is asymmetric. Actually, one may witness a relation between return and risk, as well as a non-asymmetric response of volatility to shocks during economic growth, and no risk-return relationship and asymmetric volatility during economic recession. Also, results have shown a positive relationship between return and volatility during economic growth, and a negative relationship between the same during economic recession.

Suggested Citation

  • Viorica Chirilă & Ciprian Chirilă, 2012. "Relation Between Expected Return And Volatility At Bucharest Stock Exchange, On Business Cycle Stages," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(14), pages 1-13.
  • Handle: RePEc:alu:journl:v:1:y:2012:i:14:p:13
    as

    Download full text from publisher

    File URL: http://oeconomica.uab.ro/upload/lucrari/1420121/13.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    2. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    3. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
    4. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
    5. Harding, Don & Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany.
    6. Gerhard Bry & Charlotte Boschan, 1971. "Foreword to "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs"," NBER Chapters, in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages -1, National Bureau of Economic Research, Inc.
    7. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    8. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    9. Sei‐Wan Kim & Bong‐Soo Lee, 2008. "Stock Returns, Asymmetric Volatility, Risk Aversion, And Business Cycle: Some New Evidence," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 131-148, April.
    10. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    11. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Franses,Philip Hans & Dijk,Dick van, 2000. "Non-Linear Time Series Models in Empirical Finance," Cambridge Books, Cambridge University Press, number 9780521770415, September.
    2. Alberola, Ricardo, 2007. "Estimating Volatility Returns Using ARCH Models. An Empirical Case: The Spanish Energy Market," Revista Lecturas de Economía, Universidad de Antioquia, CIE, May.
    3. Petropoulos, Fotios & Apiletti, Daniele & Assimakopoulos, Vassilios & Babai, Mohamed Zied & Barrow, Devon K. & Ben Taieb, Souhaib & Bergmeir, Christoph & Bessa, Ricardo J. & Bijak, Jakub & Boylan, Joh, 2022. "Forecasting: theory and practice," International Journal of Forecasting, Elsevier, vol. 38(3), pages 705-871.
      • Fotios Petropoulos & Daniele Apiletti & Vassilios Assimakopoulos & Mohamed Zied Babai & Devon K. Barrow & Souhaib Ben Taieb & Christoph Bergmeir & Ricardo J. Bessa & Jakub Bijak & John E. Boylan & Jet, 2020. "Forecasting: theory and practice," Papers 2012.03854, arXiv.org, revised Jan 2022.
    4. Diongue, Abdou Kâ & Guégan, Dominique, 2007. "The stationary seasonal hyperbolic asymmetric power ARCH model," Statistics & Probability Letters, Elsevier, vol. 77(11), pages 1158-1164, June.
    5. Yueh-Neng Lin & Ken Hung, 2008. "Is Volatility Priced?," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 39-75, May.
    6. Hentschel, Ludger, 1995. "All in the family Nesting symmetric and asymmetric GARCH models," Journal of Financial Economics, Elsevier, vol. 39(1), pages 71-104, September.
    7. S. M. Abdullah & Salina Siddiqua & Muhammad Shahadat Hossain Siddiquee & Nazmul Hossain, 2017. "Modeling and forecasting exchange rate volatility in Bangladesh using GARCH models: a comparison based on normal and Student’s t-error distribution," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-19, December.
    8. Bollerslev, Tim & Engle, Robert F. & Nelson, Daniel B., 1986. "Arch models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 49, pages 2959-3038, Elsevier.
    9. Alexander Subbotin & Thierry Chauveau & Kateryna Shapovalova, 2009. "Volatility Models: from GARCH to Multi-Horizon Cascades," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00390636, HAL.
    10. Debabrata Mukhopadhyay & Nityananda Sarkar, 2013. "Stock Returns Under Alternative Volatility and Distributional Assumptions: The Case for India," International Econometric Review (IER), Econometric Research Association, vol. 5(1), pages 1-19, April.
    11. Chebbi, Ali & Hedhli, Amel, 2022. "Revisiting the accuracy of standard VaR methods for risk assessment: Using the Copula–EVT multidimensional approach for stock markets in the MENA region," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 430-445.
    12. Kumar Arya & Sahoo Jyotirmayee & Sahoo Jyotsnarani & Nanda Subhashree & Debyani Devi, 2024. "Exploring Asymmetric GARCH Models for Predicting Indian Base Metal Price Volatility," Folia Oeconomica Stetinensia, Sciendo, vol. 24(1), pages 105-123.
    13. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Volatility Forecasting," PIER Working Paper Archive 05-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    14. Stavroyiannis, S. & Makris, I. & Nikolaidis, V. & Zarangas, L., 2012. "Econometric modeling and value-at-risk using the Pearson type-IV distribution," International Review of Financial Analysis, Elsevier, vol. 22(C), pages 10-17.
    15. Ricardo Alverola, 2007. "Estimating Volatility Returns Using ARCH Models. An Empirical Case: The Spanish Energy Market," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 66, pages 251-276, Enero-Jun.
    16. Jon Wongswan, 2003. "Contagion: an empirical test," International Finance Discussion Papers 775, Board of Governors of the Federal Reserve System (U.S.).
    17. Li, Youwei & Hamill, Philip A. & Opong, Kwaku K., 2010. "Do benchmark African equity indices exhibit the stylized facts?," Global Finance Journal, Elsevier, vol. 21(1), pages 71-97.
    18. Carnero, María Ángeles, 2001. "Outliers and conditional autoregressive heteroscedasticity in time series," DES - Working Papers. Statistics and Econometrics. WS ws010704, Universidad Carlos III de Madrid. Departamento de Estadística.
    19. Cristina Amado & Annastiina Silvennoinen & Timo Teräsvirta, 2018. "Models with Multiplicative Decomposition of Conditional Variances and Correlations," CREATES Research Papers 2018-14, Department of Economics and Business Economics, Aarhus University.
    20. Dima Alberg & Haim Shalit & Rami Yosef, 2008. "Estimating stock market volatility using asymmetric GARCH models," Applied Financial Economics, Taylor & Francis Journals, vol. 18(15), pages 1201-1208.

    More about this item

    Keywords

    business cycle; return; volatility; return-volatility relation;
    All these keywords.

    JEL classification:

    • G - Financial Economics
    • C - Mathematical and Quantitative Methods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:alu:journl:v:1:y:2012:i:14:p:13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dan-Constantin Danuletiu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.