Expected Stock Returns and Volatility

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Finance Papers
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Finance
Finance and Financial Management
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French, Kenneth R
Schwert, G. William
Stambaugh, Robert F
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Abstract

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.

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1987
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Journal of Financial Economics
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At the time of publication, author Robert F. Stambaugh was affiliated with the University of Chicago. Currently, he is a faculty member at the Wharton School at the University of Pennsylvania.
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