Risk return relationship over the economic cycle from 2004 to 2019 of the German and Finnish stock market
Spranger, Felix (2020)
Spranger, Felix
2020
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2020062919419
https://urn.fi/URN:NBN:fi:amk-2020062919419
Tiivistelmä
The relationship between risk and return is a key decision factor for investors. Since
markets are dynamic and change under different conditions, the above
phenomenon helps investors to understand how the risks and returns develop in
positive and negative times. The goal was to evaluate the influence of macroeconomic
factors on the risk return proposition of the German and Finnish market.
Both market economies were represented by the DAX and the OMXH25. The risk
return relationship was measured over different subperiods of a 16-year time frame
from 2004 to 2019.
The secondary data for this research was retrieved from the official brokerage
webpages. The analysis included measurements of the historical returns and
volatility of each market. Chart analysis of the Stoxx Europe 600 provided insight
into the timing of the last financial crisis. The subperiods were chosen based on the
market reaction of the European index.
The empirical analysis showed the relationship of an economic cycle with the risk
return proposition in all researched markets. Interestingly both the German and the
Finnish market outperformed their European benchmark at most periods by a
significant margin, meaning that either the risk, the return, or even both values
appeared to be more favourable. The research also showed that market timing
played a significant role when investing because systematic factors, such as
recession or expansion had a massive impact on risk and return.
The empirical findings disclose, that the German and Finnish stock markets has at
most times a better risk return proportion than the European market. Further
research would be necessary to make founded generalizations about the stock
market behaviour during other periods, including a larger sample of stocks.
markets are dynamic and change under different conditions, the above
phenomenon helps investors to understand how the risks and returns develop in
positive and negative times. The goal was to evaluate the influence of macroeconomic
factors on the risk return proposition of the German and Finnish market.
Both market economies were represented by the DAX and the OMXH25. The risk
return relationship was measured over different subperiods of a 16-year time frame
from 2004 to 2019.
The secondary data for this research was retrieved from the official brokerage
webpages. The analysis included measurements of the historical returns and
volatility of each market. Chart analysis of the Stoxx Europe 600 provided insight
into the timing of the last financial crisis. The subperiods were chosen based on the
market reaction of the European index.
The empirical analysis showed the relationship of an economic cycle with the risk
return proposition in all researched markets. Interestingly both the German and the
Finnish market outperformed their European benchmark at most periods by a
significant margin, meaning that either the risk, the return, or even both values
appeared to be more favourable. The research also showed that market timing
played a significant role when investing because systematic factors, such as
recession or expansion had a massive impact on risk and return.
The empirical findings disclose, that the German and Finnish stock markets has at
most times a better risk return proportion than the European market. Further
research would be necessary to make founded generalizations about the stock
market behaviour during other periods, including a larger sample of stocks.