Stock Returns and Volatility: An Empirical Investigation of the German and French Equity Markets

GLOBAL FINANCE JOURNAL, Vol. 7 No. 2, Fall/Winter 1996

Posted: 23 Apr 1997

See all articles by Mbodja Mougoue

Mbodja Mougoue

Wayne State University - Finance

Ann Marie Whyte

University of Central Florida

Abstract

This paper examines the relationship between stock returns and volatility in the German and French equity markets. Under the assumption of a conditional student t density function, the results indicate that stock returns in both countries may be described by the GARCH (1,1) model. The results also provide evidence that the 1987 stock market crash affected the mean-variance relationship in both countries, and the model's fit is significantly improved by explicitly taking the crash into account. Interestingly, the index of relative risk aversion is positive in both countries but is only significant in Germany when the stock market crash is incorporated into the analysis. The results also reveal that settlement delays significantly affect return in both countries and volatility in France. Furthermore accounting for structural shifts is important in ascertaining the relationship between stock returns and volatility.

JEL Classification: G12, G14, G15, F30

Suggested Citation

Mougoue, Mbodja and Whyte, Ann Marie, Stock Returns and Volatility: An Empirical Investigation of the German and French Equity Markets. GLOBAL FINANCE JOURNAL, Vol. 7 No. 2, Fall/Winter 1996, Available at SSRN: https://ssrn.com/abstract=8306

Mbodja Mougoue (Contact Author)

Wayne State University - Finance ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
313-577-4538 (Phone)
313-577-0058 (Fax)

Ann Marie Whyte

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

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