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Idiosyncratic volatility and excess Return: Evidence from the Greater China region

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  • Wang, Li-Hsun
  • Lin, Chu-Hsiung
  • Kang, Jui-Heng
  • Fung, Hung-Gay

Abstract

This study uses monthly data from the Greater China region from 1996 to 2010 to examine the relation between idiosyncratic volatility (IV) and excess returns (ER). We show an insignificant IV-ER relation in the Hong Kong and Taiwan stock markets. A positive relation is found in the Shanghai stock market, but the positive relation disappears after the market liberalization in April 2005. Our finding supports Merton's (1987) theory that excess return and idiosyncratic volatility are positively related when asset diversification is restricted.

Suggested Citation

  • Wang, Li-Hsun & Lin, Chu-Hsiung & Kang, Jui-Heng & Fung, Hung-Gay, 2016. "Idiosyncratic volatility and excess Return: Evidence from the Greater China region," Finance Research Letters, Elsevier, vol. 19(C), pages 126-129.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:126-129
    DOI: 10.1016/j.frl.2016.07.003
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    Cited by:

    1. Wang, Li-Hsun, 2017. "Accounting quality and information asymmetry of foreign direct investment firms," Research in International Business and Finance, Elsevier, vol. 42(C), pages 950-958.
    2. Li, Xing & Hou, Keqiang & Zhang, Chao, 2020. "Intangible factor and idiosyncratic volatility puzzles," Finance Research Letters, Elsevier, vol. 34(C).
    3. Qadan, Mahmoud, 2019. "Risk appetite, idiosyncratic volatility and expected returns," International Review of Financial Analysis, Elsevier, vol. 65(C).
    4. Qureshi, Fiza & Kutan, Ali M. & Ismail, Izlin & Gee, Chan Sok, 2017. "Mutual funds and stock market volatility: An empirical analysis of Asian emerging markets," Emerging Markets Review, Elsevier, vol. 31(C), pages 176-192.
    5. Yi-Shu Wang & Ting-Chen & Zhen-Jia-Liu, 2020. "The Relationship between Accounting Information Quality and Idiosyncratic Volatility: An Empirical Study on Chinese A-Share Listed Companies," Eurasian Journal of Business and Management, Eurasian Publications, vol. 8(2), pages 150-166.

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    More about this item

    Keywords

    Idiosyncratic volatility; Excess return;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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