The study aims at examining the relation between return and risk of shares listed on the HCMC Stock Exchange (HOSE). Data for the study include series of VN-Index and stock prices of 80 shares listed on the HOSE gathered on a weekly basis from Jan. 2, 2007 to Dec. 31, 2009. The results based on the regression method show that the riskier the portfolio, the higher the return and a non-linear relation between return and risk of these shares does exist. | ECONOMIC DEVELOPMENT No. 205, September 2011 A TEST OF RELATION BETWEEN RETURN AND RISK OF STOCKS LISTED ON THE HCMC STOCK EXCHANGE by Assoc. Prof., Dr. TRÖÔNG ÑOÂNG LOÄC & MEcon. TRAÀN THÒ HAÏNH PHUÙC* The study aims at examining the relation between return and risk of shares listed on the HCMC Stock Exchange (HOSE). Data for the study include series of VN-Index and stock prices of 80 shares listed on the HOSE gathered on a weekly basis from Jan. 2, 2007 to Dec. 31, 2009. The results based on the regression method show that the riskier the portfolio, the higher the return ; and a non-linear relation between return and risk of these shares does exist. Keywords: return, risk, CAPM, stock price, portfolio, beta 1. Introduction Finance market is an indispensable part of the financial system of a country and plays an important role in economic development. In a finance market, ways of determining prices of shares is a matter of great concern for researchers. Relation between return and risk is considered as the principal basis for pricing a stock. One of important achievements of modern financial theories is the CAP Model developed by Sharpe (1964), Lintner (1965) and Mossin (1966). CAPM affirms that a high expected return is associated with a high degree of risk. In other words, CAPM maintains that the expected return of an asset must be higher than risk-free rate of 2 FINANCE AND REALTY MARKETS IN VIETNAM return and have a linear relation with market risk (measured by coefficient beta). Although CAPM has been tested in many empirical researches in the past decades and become a basis for the modern portfolio theory, doubts about its explanatory power in practice tended to increase. This study aims at testing the hypothesis about whether the CAPM is correct for the case of Vietnamese stock market in general and HOSE in particular. It will provide more empirical evidence of rationality of CAPM in the case of emerging economies and help investors to made more .
