Model-based Measures of Output Gap: Application to the Thai Economy
AbstractThis paper demonstrates the finding that time-varying expected idiosyncratic volatility has a significant and positive effect on expected stock returns for individual stocks as well as stock sectors. The positive relation remains after controlling for liquidity variables. The second finding is that time-varying expected market volatility has a significant effect on expected stock returns for both individual stocks and stock sectors, which is consistent with the traditional capital asset pricing model. Although the models control for liquidity variables, the significantly positive relation still exists. In addition, expected idiosyncratic volatility plays a more important role than expected market volatility in determining expected stock returns in the case of individual stocks. In contrast, expected market volatility plays a more important role than expected idiosyncratic volatility in the case of stock sectors.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Kasetsart University, Faculty of Economics, Center for Applied Economic Research in its journal Applied Economics Journal.
Volume (Year): 19 (2012)
Issue (Month): 2 (December)
idiosyncratic volatility; market volatility; liquidity; expected stock return;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amit Goyal & Pedro Santa-Clara, 2003. "Idiosyncratic Risk Matters!," Journal of Finance, American Finance Association, vol. 58(3), pages 975-1008, 06.
- Timotheos Angelidis, 2008.
"Idiosyncratic Risk in Emerging Markets,"
0018, University of Peloponnese, Department of Economics.
- Turan G. Bali & Nusret Cakici & Xuemin (Sterling) Yan & Zhe Zhang, 2005. "Does Idiosyncratic Risk Really Matter?," Journal of Finance, American Finance Association, vol. 60(2), pages 905-929, 04.
- Wei Huang & Qianqiu Liu & S. Ghon Rhee & Liang Zhang, 2010. "Return Reversals, Idiosyncratic Risk, and Expected Returns," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 147-168, January.
- Hui Guo & Robert Savickas, 2005.
"Idiosyncratic volatility, stock market volatility, and expected stock returns,"
2003-028, Federal Reserve Bank of St. Louis.
- Guo, Hui & Savickas, Robert, 2006. "Idiosyncratic Volatility, Stock Market Volatility, and Expected Stock Returns," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 43-56, January.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- Guo, Hui & Neely, Christopher J., 2008.
"Investigating the intertemporal risk-return relation in international stock markets with the component GARCH model,"
Elsevier, vol. 99(2), pages 371-374, May.
- Hui Guo & Christopher J. Neely, 2006. "Investigating the intertemporal risk-return relation in international stock markets with the component GARCH model," Working Papers 2006-006, Federal Reserve Bank of St. Louis.
- Merton, Robert C., 1987.
"A simple model of capital market equilibrium with incomplete information,"
1869-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
- Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2004.
"The Cross-Section of Volatility and Expected Returns,"
NBER Working Papers
10852, National Bureau of Economic Research, Inc.
- Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross-Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, 02.
- Amihud, Yakov & Mendelson, Haim, 1989. " The Effects of Beta, Bid-Ask Spread, Residual Risk, and Size on Stock Returns," Journal of Finance, American Finance Association, vol. 44(2), pages 479-86, June.
- Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Fu, Fangjian, 2009. "Idiosyncratic risk and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 91(1), pages 24-37, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chatrat Hemmawat).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.