While the risk return trade-off theory suggests a positive relationship between the expected return and the conditional volatility, the volatility feedback theory implies a channel that allows the conditional volatility to negatively affect the expected return. We examine the effects of the risk...

While the risk return trade-off theory suggests a positive relationship between the expected return and the conditional volatility, the volatility feedback theory implies a channel that allows the conditional volatility to negatively affect the expected return. We examine the effects of the risk...

Using Thailand stock market data, we find that prospect theory has strong predictive power for returns in the Thailand stock market. This predictive power is strengthened during crises and bear and bull markets. The loss aversion component is the main contributor to the increased predictive...