Is Australia Risk Averse? Some Evidence from the All Ordinaries Index Market

36 Pages Posted: 13 Mar 2008 Last revised: 2 Jun 2008

See all articles by Kent Wang

Kent Wang

University of Queensland

Date Written: March 1, 2008

Abstract

Some previous work has documented a negative and insignificant risk-return relation in the Australian stock market. This study follows a systematic approach to re-examine such relationship in the All Ordinaries Index market and provide some evidence in favor of a positive and significant risk-return trade-off in the Australian market. We employ a modified univariate EGARCH-in-mean model, the MGME model, and two GMM systems with ICAPM of Merton (1973) in estimating conditional simple and partial risk-return relation in the market, considering and controlling for various empirical factors affecting the estimation. It is found that simple risk-return relation can be positive and partial risk-return relation (as in the ICAPM) is positive and significant in the All Ordinaries Index market. We employ alternative risk measures and a different econometrical approach in testing the findings and demonstrate the results to be robust and reasonable. We conclude that this study provides some evidence that the All Ordinaries market has a positive risk-return relationship and the Australian stock market investors are risk-averse.

Keywords: risk-return, all ordinaries, risk averse, ICAPM, EGARCH-in-Mean, GMM

JEL Classification: G10, G12

Suggested Citation

Wang, Kent, Is Australia Risk Averse? Some Evidence from the All Ordinaries Index Market (March 1, 2008). 21st Australasian Finance and Banking Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1104883 or http://dx.doi.org/10.2139/ssrn.1104883

Kent Wang (Contact Author)

University of Queensland ( email )

Australia

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