Market returns dictate risk premiums, changing investment strategies for better outcomes.
The study looked at how stock returns are related to market conditions on the Polish stock market. They found that the relationship between returns and risk depends on whether the market is doing well or poorly. When the market is doing well, the premium for taking on risk is higher, and when the market is doing poorly, the premium is lower. This shows that analyzing actual returns is important for understanding risk, and using beta as a measure of risk is useful for managing investments.