Research On The Relationship Between Risks And Returns Of The Stock Market

Investors join stock market to make a profit. As the risk of stock market alwaysstays with profit like a shadow of it, Investor can not avoid facing risk. So, financialresearchers have been focusing on the relationship between risks and returns of stockmarket for a long time. But in the past thirty years, there was no Unified conclusionabout the relationship between risks and returns of stock market. According to themounts of documents, I found that empirical research which used different model tomeasure risk would come to different conclusion.Because Chinese stock market has been present for a short time, most investor ofthe market tends to be not rational and non-rational phenomenon is more obvious thanwest developed countries. Previous studies have found that investor sentiment is notonly the important factor of asset pricing but also the systemic risks of stock return.For this reason, in this thesis I posit investor sentiment to explore the relationshipbetween risk and profit of stock market. Based on the data of stock market from2006to2010and using three different volatilities lead to the same set of conclusions in thelow sentiment period, there is a positive risk-return tradeoff, but this tradeoff isundermined in the high sentiment period significantly.