The Relationship between Risk and Return - An Empirical Evidence from Real Estate Stocks Listed in Vietnam

Abstract

The purpose of this paper is to investigate the relationship between risk and stock returns for Vietnamese real estate stocks. We used the three-factor model and took advantage of the differences in the Vietnamese real estate market to introduce the five-factor model including three factors explained by Fama and French (1993) and two additional factors namely asset liquidity and financial leverage for testing the correlation between risk and stock returns for Vietnamese real estate stocks. Our empirical findings from a comprehensive secondary data set of stocks listed on both the Hochiminh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) between 2011 and 2016 showed that the required rate of return was driven not just by market risk, but also by other factors such as value, liquidity and financial leverage. Specifically, market risk was positively related to the expected rate of return. Liquidity risk premium was positively correlated with stock returns. The relationship between size risk and stock returns was also significantly positive for small sized companies, which is contrary to the negative relationship for large sized companies. Additionally, the HML factor was negatively and positively correlated with the rate of return for large sized and small sized firms, respectively.