Expected Stock Returns and Volatility
Yale University, New Haven, CT
and National Bureau of Economic Research
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Robert F. Stambaugh
University of Pennylvania, Philadelphia, PA
and National Bureau of Economic Research
Journal of Financial Economics, 19 (September 1987) 3-29
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.
Key words: Stock Market, Volatility, Leverage, ARIMA, GARCH
JEL Classifications: G12, G14
Cited 177 times in the SSCI through April 1996
© Copyright 1987, Elsevier
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