Empirical Study on Risk and Return of Australian Equity Market

In this article, we empirically examine and discuss the risk and return of Australian market as well as five industry sector portfolios (Materials, Financials, Info Tech, Health Care and Cons Staples) on ASX over a ten-year period. Several techniques will be used, including EDA, Correlation analysis, CAPM, Stress Testing and Factor modeling. Our research draws the conclusions: all portfolios in the market have close-to-zero average monthly returns over ten-year period; they are all negative skewed and fat-tailed comparing to a normal distribution; none of the industries have significant above-market average return over this period, and they have different levels of market risk and tail risk; by comparing the factor model and the CAPM, independent variables and coefficients are meaningful in the CAPM which subject to heteroskedasticity of errors, while the factor model has better fit than the CAPM for return series.