Abstract:

This study analyzed the relationship between risk and return for Turkish stock markets. For this purpose, it is primarily used in the framework of the traditional approach FIAPARCH-M, FIGARCH-M, HYGARCH, APARCH-M, GJR-GARCH and GARCH-M models. The relevant models were separately predicted for both the entire period and for the high and low volatility periods determined taking into account multiple structural fractures in volatility. Afterwards, all the models related as an alternative approach were re-predicted taking into account the periods in which the market risk premium was positive and the periods in which it was negative. Furthermore, this alternative model also examined whether the overreaction hypothesis applies to the Turkish stock markets. Traditional approach-based findings indicate that, contrary to theoretical expectations, there is a negative and statistically meaningless relationship between risk and return on the Turkish stock market. Alternative approach-based findings indicate that there is a relationship between risk and return in accordance with theoretical expectations. The findings also point to the conclusion that the overreaction hypothesis is not applicable to Turkish stock markets. This finding also contains important information about investment strategies that can be implemented in Turkish stock markets.

Keywords: