The Performance of the European Stock Markets: A Time-Varying Sharpe Ratio Approach
(Publicado em The European Journal of Finance 16(7): 727-741, 2010)
José A. Soares da Fonseca
Faculdade de Economia/GEMF, Universidade de Coimbra
This article studies the performance of the national stock markets of sixteen European countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Ireland, Italy, Norway, Portugal, Spain, Sweden Switzerland and United Kingdom), using daily data covering the period between 2nd January 2001 and 30th May 2009. Daily expected returns, and the conditional volatility of each index, were calculated using a model combining the market model and an implicit long-term relation between the index prices. Finally, time-varying (conditional) Sharpe ratios were calculated for each index. These were used as the basis for a statistical comparison of the performance of the stock indexes of this group of countries, throughout different sub periods corresponding to different conditions (of expansion and depression) in the stock markets.
JEL Classification: F36, G15.
Keywords: expected return, Sharpe ratio, market model, conditional volatility.