This study revisits the risk-return relationships in the Hong Kong stock market using a conditional model based on up and down markets. Beta is found significantly and positively (negatively) related to realized returns when the market excess returns are positive (negative). The same results are found for unsystematic risk, total risk and kurtosis of stock returns during up and down markets when they are added to the model. Furthermore, skewness is significantly but negatively (positively) related to realized returns during up (down) markets. These results indicate that other risk measures in addition to beta are also important in pricing risky assets and investors do not hold diversified portfolios in this market. Moreover, the results support investors' preference that they prefer positive skewness but dislike kurtosis.
Scopus Subject Areas
- Economics and Econometrics