A third empirical issue which has been raised is the correlation between stock return volatility and stock expected returns. Merton (1980) postulated that expected stock market return should be positively related with the variance of market return (and proportional to it). However, the empirical evidence is not conclusive. French, Schwert and Stambaugh (1987) and Campbell and Hentschel (1992) nd this correlation to be positive, while Turner, Starz and Nelson (1989), Glosten, Jangannathan and Runkle (1993) and Nelson (1991) nd this correlation to be negative. Often the coe¢ cient linking stock return volatility and stock expected returns is statistically insigni cant
