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Tao Wang
 
''Financial Constraints and the Risk-Return Relation''
( 2007, Vol. 7 No.12 )
 
 
Stock return volatilities are related to firms' financial status. Financially constrained firms are more volatile. Their stock return volatilities react more negatively to lagged return changes than financially unconstrained firms. This strong negative relation between volatilities and lagged returns for financially constrained firms are not affected by industry differences or firm leverage. Moreover, the debt-equity ratio is not as important as financial constraints for the firm-level risk-return relation.
 
 
Keywords: discriminant analysis
JEL: G1 - General Financial Markets: General (includes Measurement and Data)
G0 - Financial Economics: General
 
Manuscript Received : Aug 15 2007 Manuscript Accepted : Aug 15 2007

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