The mean-variance relationship has long been a focus in finance literature. Traditional financial theories propose a positive mean-variance relationship, or risk-return tradeoff (Merton, 1973), i.e. bearing high (low) risk should be rewarded by high (low) returns, empirical studies document at best inconclusive evidence with three mainstreams due to different economic settings and volatility model selection. French et al. (1987), Scruggs (1998), Ghysels et al. (2005), Lundblad (2007), Pástor et al. (2008), Brandt and Wang (2010), and Rossi and Timmermann (2015), among others find the risk-return tradeoff despite being less significant in some cases. On the other hand, Nelson (1991), Brandt and Kang (2004), Baker et al. (2011), Fiore and Saha (2015), and Booth et al. (2016), among others, document a negative mean-variance relationship. Turner et al.

(1989), Glosten et al. (1993), Sun et al. (2017), and Wang et al. (2017), 4 among others, report both positive and negative relationship between risk and returns.
A wide range of theories are proposed to explain the weak risk-return tradeoff, such as investor sentiment (Yu and Yuan, 2011; Wang, 2018a&b; Wang and Duxbury, 2021) and differences in overnight and intraday returns (Wang, 2021).

In line with the above, answer the following requirements:

Required:

1. Discuss the theoretical underpinnings in (i) Yu and Yuan (2011) and Wang (2018a), and (ii) Wang (2018b) and Wang and Duxbury (2021)

2. Critically review literature, and summarise and evaluate approaches to construct proxies for investor sentiment.

3. Suppose that you decide to extend the US evidence from Wang (2021) to an emerging market. Select the market and justify your
selection.

4. For the selected market, present and interpret descriptive statistics
of

 (i) overnight returns

(ii) intraday returns 

(iii) total returns.

5. Select one method to filter conditional volatility. Present and interpret descriptive statistics of conditional volatility of (i) overnight returns, (ii) intraday returns, and (iii) total returns.

6. Examine the mean-variance relation for (i) overnight returns, (ii) intraday returns, and (iii) total returns. Interpret.

The work should not exceed 3,500 words. Excessive assignments will be penalised according to section 9.13 of Regulation 9 Regulation Governing Postgraduate Taught Awards: “Assessed work which exceeds a specified maximum permitted length will be subject to a penalty deduction of marks equivalent to the percentage of additional words over the limit. The limit excludes bibliographies, diagrams and tables, footnotes, tables of contents and appendices of data.”