Intertemporal risk-return relationship in the Asian markets around the Asian crisis

Authors

  • Eric Girard Analytical Department, School of Business, Indiana State University, Terre Haute, IN 47809, USA
  • Hamid Rahman College of Business, Alliant International University, 10455 Pomerado Road, San Diego, CA 92131, USA
  • Tarek Zaher Analytical Department, School of Business, Indiana State University, Terre Haute, IN 47809, USA

DOI:

https://doi.org/10.1016/S1057-0810(02)00094-X

Keywords:

Asian crisis, Overreaction hypothesis, Market price of risk, Conditional risk, CAPM

Abstract

This study investigates the risk±return relationship in nine Asian capital markets and the U.S. before, during, and after the Asian ®nancial crisis. Using a state-dependent approach in a TGARCH(1,1)-M framework, we investigate a contemporaneous version of the CAPM by accounting for negative and positive market price of variance risk. We find a significant positive relationship between risk premium and variance in all markets in upstate, as well as a signi®cant negative relationship in downstate. Also, we validate our findings by showing that implied state-dependent market prices of variance risk explain risk premia across markets. Finally, we investigate how the model can be used to uncover overreaction and improve the number of correct directional calls in a tactical asset allocation strategy. Our results provide support for a contrarian strategy that individual investors can follow. Copyright 2001 Elsevier Science Inc. All rights reserved.

Downloads

Published

2001-12-30

How to Cite

Girard, E., Rahman, H., & Zaher, T. (2001). Intertemporal risk-return relationship in the Asian markets around the Asian crisis. Financial Services Review, 10(1-4), 249–272. https://doi.org/10.1016/S1057-0810(02)00094-X

Issue

Vol. 10 No. 1-4 (2001): Financial Services Review

Section

New Original Submission

License

Copyright (c) 2001 Elsevier Science Inc.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.