Analysis of Dynamic Risk-Return Relation by Cross-Sectional ICAPM in Taiwan Stock Market

• Main Authors: Mei-Hua Lee, 李美樺
• Other Authors: Yu-Chen Tu
• Format: Others
• Language: zh-TW
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/hgpemu

碩士 === 銘傳大學 === 財務金融學系碩士班 === 95 === The purpose of this study is to obtain how the expected return and conditional volatility of the Taiwan stock market covary over time. We utilize a cross-sectional approach based on Merton’s (1973) ICAPM that can be implemented in a parsimonious GMM framework to infer the aggregate intertemporal risk-return relation. This research is based on listed company of Taiwan, and the sample period is from January 1998 through December 2006. Different from past literatures use the time series data only or assume that the risk-return relationship is constant through time, which resulted in there is conflicting evidence regarding the sign of the risk-return relation. For relaxing the parametric assumption, neither do we impose ex ante that the relation between risk and return is constant over time. Hope to offer better explanation to the dynamic risk-return relation. The analyzed results as followings: 1.When the three factors model of Fama and French (1993) are pricing factors, the dynamic market risk aversion is a counter-cyclical pattern with Taiwan Weighted Stock Price Index. 2.The hedge aversion which is measured by HML is a counter-cyclical pattern with Taiwan Weighted Stock Price Index whereas which is measured by SMB is less related to the counter-cyclical pattern. Suggest that the explaining ability of BE/ME is better than SIZE. 3.The relation between the volatility component and hedge component exhibits strong negative, suggesting that the stock market can provide a hedging opportunity to long-term investors. 4.When the innovation of instrumental variables are pricing factors, the dynamic market risk aversion is a counter-cyclical pattern with Taiwan Weighted Stock Price Index. 5.The increase of information due to cross-sectional aggregation that helps to measure the dynamic risk-return relation.