An Empirical Study on the Relation between Risk and Return in China Stock Market

This paper studies the intertemporal relation between risk and return in the China stock market return. The market's conditional variance is proxy for risk. I model conditional variance by MIDAS (the mixed data sampling) approach, which forecasts monthly variance with past daily squared returns. Using MIDAS. I find a significantly positive relation between risk and return in the china stock market. The finding is robust when use the asymmetric specifications of the variance process. This means that the ICAPM model is well in China stock market.