Idiosyncratic volatility and equity returns: UK evidence

Angelidis, Timotheos; Tessaromatis, Nikolaos

doi:10.1016/j.irfa.2006.10.006

Cited by 28 publications

(19 citation statements)

References 49 publications

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“…For the creation of size portfolios, we use median by following Fama and French (1993 Table 1 shows that idiosyncratic volatility is the largest component of total volatility irrespective of the size and employed weighting scheme, similar to findings of Campbell et al (2001), Goyal and Santa Clara (2003) for the US market and Angelidis and Tessaromatis (2008) for the UK market. The average idiosyncratic volatility represents between 64.62% and 98.17% of total average volatility and therefore market variance is only fraction of the total variance.…”

Section: A Data and Methodologymentioning

confidence: 74%

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Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence

Gökgöz¹,

Altintaş²

2013

Economic Research-Ekonomska Istraživanja

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In finance literature, Capital Asset Pricing Model predict only systematic risk is priced in equilibrium and neglect firm specific (idiosyncratic) risk which can be eliminated by diversification. However in real world investors, who are disable to diversify their portfolios, should take into consideration idiosyncratic risk beside of systematic risk in prediction of expected return. In this article, we examine real market conditions in Istanbul Stock Exchange (ISE), an emerging market stock exchange, over the period 2007:01 to 2010:12 by studying market wide and idiosyncratic volatility following the methodology of Campbell et al.(2001). Our findings suggest that, in 2007-2010 period, idiosyncratic volatility is the biggest component of total volatility and shows no trend in this period. Beside that our analyses about the predictive ability of various measures of idiosyncratic risk provide evidence that idiosyncratic volatility is not a significant predictor for future return. ARTICLE INFO

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Section: A Data and Methodologymentioning

confidence: 74%

“…Nonetheless French et al (1987) pointed out that non-synchronous trading of securities causes daily portfolio returns to be autocorrelated, particularly at on lag one. So, the second term of the Equation 1 adjusts the variance to the autocorrelation of the stock returns (Angelidis and Tessaromatis, 2008).…”

Section: Measuring Idiosyncratic Riskmentioning

confidence: 99%

Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence

Gökgöz¹,

Altintaş²

2013

Economic Research-Ekonomska Istraživanja

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“…Angelidis and Tessaromatis (2008a) found that the small stocks idiosyncratic volatility is strong predictor of the small capitalization premium of market returns. Angelidis and Tessaromatis (2008b) argued that there was a positive relationship between the equally weighted measure of idiosyncratic risk and subsequent stock returns, but no relation was found between the value weighted measure of idiosyncratic riskwhich by construction over-weights large capitalization stocks -and future market returns.…”

Section: Introductionmentioning

confidence: 99%

Does Idiosyncratic Risk Matter? Evidence from the Japanese Stock Market

Xiao

2015

EJBM

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It would seem that a relationship exists between the idiosyncratic risk and stock returns, and the idiosyncratic risk exhibits a positive and statistically significant trend. The goal of this paper is to use data from Japanese markets to investigate the two issues for the 2000-2014 period and provide further evidence that adds to the existing conflicting results. Our results suggest that existence of a positive relationship between the equally weighted measure of idiosyncratic risk and subsequent stock returns, but we don't find a rise in idiosyncratic volatility over the period.

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“…Method of Campbell et al (2001) was used to calculate unsystematic risks and also in steps of testing hypothesis by using SPSS, the following results are presented: Table I shows that unsystematic volatility is the largest component of total volatility irrespective of the size, similar to findings of Campbell et al (2001), Goyal and Santa Clara(2003) for the US market and Angelidis and Tessaromatis (2008) for the UK market. The average idiosyncratic volatility represents between 70% and 95% of total average volatility and therefore market variance is only fraction of the total variance.…”

Section: The Analysis Of the Studymentioning

confidence: 61%

“…For instance, in Germany and the U.K, one can apply the study Drew et al (2006) on all listed companies in Germany and the U.K from 1991 to 2001 by using monthly data of unsystematic risks fluctuations and stocks returns, the study proved that unsystematic risks fluctuations are a good tool for explaining expected returns as well as study of Angelidis and Tessaromatis (2008)that applied to all shares trended in London stock exchange market from 13/12/1979 to 30/09/2003, depending on monthly data for unsystematic risks fluctuations and stocks returns by the study of Campbell et al,. Also the study proved that small capitalisation stocks fluctuations affect assets pricing, as well as the small stocks of unsystematic risks fluctuations depend on the market returns.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Unsystematic Risk on Stock Returns in an Emerging Capital Markets (ECM’s) Country: An Empirical Study

Masry¹,

Menshawy²

2017

IJFR

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In this study, we aim to introduce behavior of unsystemayic risk and its forecasting ability in prediction of future return in Egyptian Stock Exchange (ESE) as an Emerging Capital market (ECM), over the period of 2006 to 2015. We measure equally weighted unsystemayic volatility by following the Campbell's (2001) Indirect Method, by considering market size and weekly basis. Our results reveal that unsystemayic risk is the biggest component of total volatility and show no trend, although market volatility has a slow decreasing trend in this period. We also find that small size stocks have slightly higher volatility than the big size stocks but both portfolios have similar idiosyncratic risk behavior. Finally, our analyses about the predictive ability of various measures of unsystematic risk provide evidence that unsystematic risk volatility is not a significant predictor for future return in ESE.

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Idiosyncratic volatility and equity returns: UK evidence

Cited by 28 publications

References 49 publications

Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence

Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence

Does Idiosyncratic Risk Matter? Evidence from the Japanese Stock Market

The Impact of Unsystematic Risk on Stock Returns in an Emerging Capital Markets (ECM’s) Country: An Empirical Study

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