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Extreme returns and the idiosyncratic volatility puzzle: African evidence

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  • Ji Wu
  • Eze Peter Chimezie
  • Gilbert V. Nartea
  • Jing Zhang

Abstract

We examine the cross-sectional relationship between the expected stock return and both the maximum daily return (MAX) and the idiosyncratic volatility (IVOL) in the five largest emerging African stock markets over the period from 2001 to 2015. First, we find that there is a robust and significantly negative MAX effect in the pooled African stock markets. Second, though we initially document a negative IVOL effect, it disappears after controlling for MAX. Finally, the negative MAX effect is only significant in the small-SIZE, high-illiquidity and high-skewness portfolios. Our results suggest risk-seeking behaviour among African investors similar to that in other parts of the world.

Suggested Citation

  • Ji Wu & Eze Peter Chimezie & Gilbert V. Nartea & Jing Zhang, 2019. "Extreme returns and the idiosyncratic volatility puzzle: African evidence," Applied Economics, Taylor & Francis Journals, vol. 51(58), pages 6264-6279, December.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:58:p:6264-6279
    DOI: 10.1080/00036846.2019.1631442
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    Cited by:

    1. Ali, Syed Riaz Mahmood & Hasan, Mohammad Nurul & Östermark, Ralf, 2020. "Are idiosyncratic risk and extreme positive return priced in the Indian equity market?," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 530-545.
    2. Adeabah, David & Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2023. "How far have we come and where should we go after 30+ years of research on Africa's emerging financial markets? A systematic review and a bibliometric network analysis," Emerging Markets Review, Elsevier, vol. 55(C).

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