MOVEMENTS OF THE AUSTRALIAN STOCK RETURNS FOR THE 1982 TO 1994 PERIOD: A VARIANCE DECOMPOSITION APPROACH TO FINANCIAL RISK ANALYSIS

Yew-Choe Lum ； Sardar M. N. Islam

《Advances in Quantitative Analysis of Finance and Accounting》 14期 (2016/12) Pp. 241-262

https://doi.org/10.6293/AQAFA.2016.14.08

摘要

This paper uses variance decomposition of stock returns to study the movements of unexpected stock returns by using Australian data. ＂News about future stock returns＂ and ＂news about future cash flows＂ are the two components affecting the unexpected stock returns. The relative importance of the two components depends not only on the forecastibility of the returns but also on the time series' properties of the forecastable components of returns. It is found that expected stock returns do not change through time in a persistent fashion. ＂News about future cash flows＂ account for majority of the volatility in unexpected stock returns. This implies that fundamental values drive the Australian stock market, which is contrary to U.S. findings but similar to prior evidence on Japanese stock market. By using implied variance ratios, it is suspected that risk factors change over time.

關鍵字

Variance Decomposition ； Risk Analysis ； Share Return

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