Faculty Scholarship 1994 - Present

Risk and Return in the World's Major Stock Markets

The well-known Sharpe and Treynor Indices measure portfolio return performance in terms of only one risk characteristic. However, several risk characteristics of the investment may be important for the investor. Data Envelopment Analysis (DEA), a new operations research technique, makes it possible to measure investment return performance in terms of a group of various risk characteristics that may be equally important for the investor. In this study, we use six different risk measures to compare the return performances of the world's sixteen major stock markets during the 1988-1997 and 1995-1997 periods. Our findings indicate that the U.S. stock market had the best return performance in terms of systematic risk, return volatility, market capitalization (MCAP), and book value/market equity (BV/ME) individual risk characteristics in both periods. The U.S., Dutch, German, and Swiss stock markets has the best overall return performances in terms of all six risk characteristics in both periods. The U.K. stock market also had one of the best overall return performances in terms of all six risk characteristics in the 1995-1997 period.