The relationship between Beta and Stock Returns: evidence from Singapore and Malaysia

Abstract

The relationship between beta and stock returns remains controversial. Using a sample of 323 stocks from the stock exchanges of Singapore and Malaysia, we fa il to detect an unconditional relationship between beta and stock returns. In the spirit of Pettengill, Sundaram and Mathur (1995), we partition the analysis to examine beta and returns during up market and down market periods. Our results confirm the findings of these authors that a conditional relationship exists between beta and stock returns and that it also holds for small emerging markets such as Singapore and Malaysia. During periods with positive market excess returns. there is a significant and positive relationship between beta and stock returns. On the other hand, during periods with negative market excess returns. there is a significant but negative relationship. We fail to detect a positive risk-return tradeoff.