Volatility and return relationship – a case of Nordic stock market

Abstract

This study investigates the relation of risk-return of four Nordic stock market’s indices – OMX Copenhagen, OMX Helsinki, OMX Stockholm and Oslo Exchange All Shares from January 1996 to February 2017. EGARCH and GARCH model are used to model conditional volatility. OMX Copenhagen shows a reliable negative risk-return relation through the estimated period in both daily and monthly frequency. There is no positive risk return correlation found in this study. This study indicates that there is strong covariation in risk premium and unexpected volatility in four Nordic stock market’s indices. The leverage effect testing shows that the lower return would induce the higher realized volatility change.