Reassessing Financial Risk and Share Returns

What is it about?

The study aims to see if there is a positive connection between various financial risk measures and expected share returns. It follows up on a previous study from 1995, comparing results with a similar U.S. study from 1988. The new study, conducted from 2002 to 2012 with 107 JSE-listed companies, finds no linear relationship between risk measures and share returns. This contradicts the expectation that if investors avoid risk, there should be a positive link between financial risk and expected share returns in the South African market. In simpler terms, the research investigates whether financial risk influences share returns in South Africa, finding unexpected results compared to previous studies.

Featured Image

Photo by Lukas Blazek on Unsplash

Photo by Lukas Blazek on Unsplash

Why is it important?

This research is important as it investigates the relationship between various financial risk measures and expected share returns in the South African market. The study is a follow-up to earlier research from 1995, providing insights into whether there have been changes in results over a 19-year period. The findings are crucial for investors and financial analysts as they challenge the conventional expectation of a positive connection between financial risk and expected share returns. The research contributes to the understanding of the South African market dynamics and the impact of financial risk on investment decisions, offering valuable information for market participants and policymakers.