The short-term and long-term trade-off between risk and return: chaos vs rationality

This paper used the composite construction method proposed by Haugen (1999) and its application by Zhao and Wang (2010) for the Chinese stock market. Utilizing the Shanghai A-share market stocks data, this paper first selected the shares listed on the Shanghai Stock Exchange during January 1, 1997...

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Main Authors: Chang Liu, Haoming Shi, Liang Wu, Min Guo
Format: Article
Language:English
Published: Vilnius Gediminas Technical University 2020-01-01
Series:Journal of Business Economics and Management
Subjects:
Online Access:https://journals.vgtu.lt/index.php/JBEM/article/view/11349
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spelling doaj-2ff61911675243a7b9ff78ef527672412021-07-02T11:53:42ZengVilnius Gediminas Technical UniversityJournal of Business Economics and Management1611-16992029-44332020-01-0121110.3846/jbem.2019.11349The short-term and long-term trade-off between risk and return: chaos vs rationalityChang Liu0Haoming Shi1Liang Wu2Min Guo3Southwestern University of Finance and Economics, Chengdu, China 2Sichuan University, Chengdu, ChinaSouthwestern University of Finance and Economics, Chengdu, China 2Sichuan University, Chengdu, ChinaSichuan University, Chengdu, ChinaChina Great-Wall Asset Management Co., Ltd, Chengdu, China This paper used the composite construction method proposed by Haugen (1999) and its application by Zhao and Wang (2010) for the Chinese stock market. Utilizing the Shanghai A-share market stocks data, this paper first selected the shares listed on the Shanghai Stock Exchange during January 1, 1997 to December 31, 2017. A portfolio was then built according to the mean variance model of portfolio structure, and simulation results were analysed using the Wilcoxon Signed Rank Test. The relationship between risk and return in the long and short term was explored. Results indicated no significant relationship between the risk and return of the stock portfolio in the short run, which reflects the complexity of the Chinese stock market. However, in the long run, the risk and return of the stock portfolios are positively correlated, which means that high returns are accompanied by high risks, indicating that the stock market will eventually return to rationality. In other words, the A-share stock market will eventually return to be value-driven and the short-term speculators would be outweighed by long-term value investors. First published online 07 November 2019 https://journals.vgtu.lt/index.php/JBEM/article/view/11349risk-return relationshipvalue investorsspeculatorslong-term rationalityshort-term chaosrisk
collection DOAJ
language English
format Article
sources DOAJ
author Chang Liu
Haoming Shi
Liang Wu
Min Guo
spellingShingle Chang Liu
Haoming Shi
Liang Wu
Min Guo
The short-term and long-term trade-off between risk and return: chaos vs rationality
Journal of Business Economics and Management
risk-return relationship
value investors
speculators
long-term rationality
short-term chaos
risk
author_facet Chang Liu
Haoming Shi
Liang Wu
Min Guo
author_sort Chang Liu
title The short-term and long-term trade-off between risk and return: chaos vs rationality
title_short The short-term and long-term trade-off between risk and return: chaos vs rationality
title_full The short-term and long-term trade-off between risk and return: chaos vs rationality
title_fullStr The short-term and long-term trade-off between risk and return: chaos vs rationality
title_full_unstemmed The short-term and long-term trade-off between risk and return: chaos vs rationality
title_sort short-term and long-term trade-off between risk and return: chaos vs rationality
publisher Vilnius Gediminas Technical University
series Journal of Business Economics and Management
issn 1611-1699
2029-4433
publishDate 2020-01-01
description This paper used the composite construction method proposed by Haugen (1999) and its application by Zhao and Wang (2010) for the Chinese stock market. Utilizing the Shanghai A-share market stocks data, this paper first selected the shares listed on the Shanghai Stock Exchange during January 1, 1997 to December 31, 2017. A portfolio was then built according to the mean variance model of portfolio structure, and simulation results were analysed using the Wilcoxon Signed Rank Test. The relationship between risk and return in the long and short term was explored. Results indicated no significant relationship between the risk and return of the stock portfolio in the short run, which reflects the complexity of the Chinese stock market. However, in the long run, the risk and return of the stock portfolios are positively correlated, which means that high returns are accompanied by high risks, indicating that the stock market will eventually return to rationality. In other words, the A-share stock market will eventually return to be value-driven and the short-term speculators would be outweighed by long-term value investors. First published online 07 November 2019
topic risk-return relationship
value investors
speculators
long-term rationality
short-term chaos
risk
url https://journals.vgtu.lt/index.php/JBEM/article/view/11349
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