Study on the Risk-Return Relationship in Chinese Stock Markets: Sampling from the Mixed Data

This paper investigates the intertemporal relation between the conditional mean and the conditional variance of Chinese stock market return. The empirical study with a sample from the mixed data (or MIDAS) shows that a negative and statistically insignificant risk-return relationship is found in Shanghai Stock Market, but a positive and statistically significant risk-return relationship is found in Shenzhen Stock Market. In contrast, the results show the stock return is positively related to the risk in Shanghai and Shenzhen Stock Market with GARCH-M model; however this relationship is only statistically significant in Shenzhen. Comparing with the results from MIDAS and GARCH-M, we find that GARCH-M model seems to be better in this line study.