Kenneth R. French

Tuck School, Dartmouth College, Hanover, NH
and National Bureau of Economic Research

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G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research

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Robert F. Stambaugh

University of Pennylvania, Philadelphia, PA
and National Bureau of Economic Research

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Journal of Financial Economics, 19 (September 1987) 3-29

JFE All Star Paper

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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.

Key words: Stock Market, Volatility, Leverage, ARIMA, GARCH

JEL Classifications: G12, G14

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Cited 684 times in the SSCI and SCOPUS through 2008

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© Copyright 1987, Elsevier

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