Inter-temporal Relationship between Risk and Return: Evidence from Tehran Securities Exchange (TSE)

ABSTRACT: In Traditional Capital Asset Pricing Model (Sharpe, 1964; Lintner, 1965) assumed that the variance is constant over time. This paper introduces Inter-temporal Capital Asset Pricing Model (ICAPM) with modifying this assumption. This study is Ex Post Facto (Causal-Comparative) Research based on observational data. This paper uses generalized autoregressive conditional Heteroscedasticity-in-mean (GARCH-M) to estimate the inter-temporal risk-return relation from various Indexes of Tehran securities exchange. The overall conclusion of estimated coefficients using the Tehran securities exchange index (TEPIX) indicate that the inter-temporal risk-return relation not be rejected and the inter-temporal risk-return relation is negative. Also the Inter-temporal Capital Asset Pricing Model (ICAPM) is not hold. The limited period of this study as well as the change of nature of Tehran securities exchange index (TEPIX), however, restrict the generalization of these findings.