Re-examination of Risk and Return: New Evidence from the Emerging and Transforming Stock Market of China

We examine the hypothesis of risk and return in the emerging and transforming market of China. It is a fundamental concept in finance that is important to investors and portfolio managers. Previous studies reach no consensus on the risk-return relationship using data from our markets. We investigate risk variables that explain the cross-section of returns in the emerging markets. Based on the behavioral portfolio theory, an empirical model is formed. We find a significant complex relationship between risk and return in the market. The results are robust for both monthly and weekly returns. Our findings indicate that risk-seeking companies in the emerging stock market of China can also achieve high returns at low risk.