Beta and Returns Revisited: Evidence From the Korean and Taiwan Stock Markets

Abstract

This paper examines the relation between beta and realized returns in the Korean and Taiwan stock markets. Traditional tests found that beta is unable to explain the realized returns in both markets. Though unsystematic risk, total risk, skewness and kurtosis are significantly related to returns in the Korean market, the explanatory power is still low. When tests are performed conditionally on up and down markets periods, beta is found significantly and positively (negatively) related to realized returns in up (down) markets. The explanatory power increases substantially. Furthermore, the coefficient of unsystematic risk is significantly positive in up markets while that of skewness is significant in both up and down markets (in down markets only) in Korea (Taiwan). Total risk and kurtosis are both significantly and positively (negatively) related to returns in up (down) markets in Korea. Results show that other statistical moments of returns are also useful in asset pricing.