Abstract:
This paper attempts to examine the risk and return relationship in Colombo Stock
Exchange (CSE). The sample composed of 53 listed companies in the CSE which
have at least 200 trading days per year. The sample period spans 2005 January to
2015 September. Initially, we run an Ordinary Least Squares to determine the beta
coefficient of each company. Based on beta we formed three portfolios as 30th
percentile low beta stocks, 70th percentile moderate beta and the rest is high beta
stocks. Then, we examined the risk and return modalities of each portfolio. The
findings very well establish a negative risk and return relationship of individual
securities. However, High beta stock portfolio demonstrates high returns and vice
versa. Importantly, we also observed significant differences in risk and returns among
three portfolios.
