This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Is Idiosyncratic Volatility Priced? Evidence from the Shanghai Stock Exchange

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Michael E. Drew
Tony Naughton
Madhu Veeraraghavan

Additional information is available for the following registered author(s):

Abstract

This paper employs the mimicking portfolio approach of Fama and French (1996) and asks whether idiosyncratic volatility is priced. This paper also provides evidence on whether returns on small stocks are higher in January than in remaining months. Our findings reveal that (a) idiosyncratic volatility is priced; and, (b) the multifactor model provides a better description of average returns than the traditional CAPM. We also find that the absolute pricing errors of the CAPM are large when compared with the multifactor model. We argue that firm size and idiosyncratic volatility may serve as proxies for systematic risk. We also dismiss the claim that returns on small stocks are on average higher in January than in remaining months. In summary, investors interested in taking additional risks should invest in small and low idiosyncratic volatility firms in addition to the market portfolio. This is because our findings indicate that investors can generate substantial returns by investing in strategies unrelated to market movements.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://www.bus.qut.edu.au/faculty/schools/economics/documents/discussionPapers/2003/DP%20138%20Drew.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 138.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 20 Jan 2003
Date of revision:
Handle: RePEc:qut:dpaper:138

Contact details of provider:
Postal: GPO Box 2434, BRISBANE QLD 4001
Email:
Web page: http://www.bus.qut.edu.au/faculty/schools/economics/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Dr Vlad Pavlov).

Related research
Keywords: Idiosyncratic Volatility; Firm Size; Asset Pricing; China.;

Other versions of this item:

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

References listed on IDEAS
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.:

  1. Donald B. Keim, . "Dividend Yields and Stock Returns: Implications of Abnormal January Returns," Rodney L. White Center for Financial Research Working Papers 14-85, Wharton School Rodney L. White Center for Financial Research.
    Other versions:
  2. Daniel, Kent & Titman, Sheridan, 1997. " Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," Journal of Finance, American Finance Association, vol. 52(1), pages 1-33, March. [Downloadable!] (restricted)
    Other versions:
  3. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June. [Downloadable!] (restricted)
  4. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 36-58. [Downloadable!]
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September. [Downloadable!] (restricted)
  7. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September. [Downloadable!] (restricted)
  8. Shlomo Benartzi & Richard H. Thaler, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March. [Downloadable!] (restricted)
  9. Kent Daniel, 2001. "Explaining the Cross-Section of Stock Returns in Japan: Factors or Characteristics?," Journal of Finance, American Finance Association, vol. 56(2), pages 743-766, 04. [Downloadable!] (restricted)
  10. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04. [Downloadable!] (restricted)
  11. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March. [Downloadable!] (restricted)
  12. Lee, Cheng F & Chen, Gong-meng & Rui, Oliver M, 2001. "Stock Returns and Volatility on China's Stock Markets," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 24(4), pages 523-43, Winter.
  13. Pastor, Lubos & Stambaugh, Robert F., 2000. "Comparing asset pricing models: an investment perspective," Journal of Financial Economics, Elsevier, vol. 56(3), pages 335-381, June. [Downloadable!] (restricted)
    Other versions:
  14. Keim, Donald B. & Stambaugh, Robert F., 1986. "Predicting returns in the stock and bond markets," Journal of Financial Economics, Elsevier, vol. 17(2), pages 357-390, December. [Downloadable!] (restricted)
    Other versions:
  15. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2000. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," NBER Working Papers 7590, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March. [Downloadable!] (restricted)
  17. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," Journal of Business, University of Chicago Press, vol. 45(3), pages 444-55, July. [Downloadable!] (restricted)
  18. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March. [Downloadable!] (restricted)
  19. Kothari, S P & Shanken, Jay & Sloan, Richard G, 1995. " Another Look at the Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 185-224, March. [Downloadable!] (restricted)
  20. Branch, Ben, 1977. "A Tax Loss Trading Rule," Journal of Business, University of Chicago Press, vol. 50(2), pages 198-207, April. [Downloadable!] (restricted)
  21. MacKinlay, A. Craig, 1995. "Multifactor models do not explain deviations from the CAPM," Journal of Financial Economics, Elsevier, vol. 38(1), pages 3-28, May. [Downloadable!] (restricted)
  22. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March. [Downloadable!] (restricted)
  23. Aggarwal, Reena & Rivoli, Pietra, 1989. "Seasonal and Day-of-the-Week Effects in Four Emerging Stock Markets," The Financial Review, Eastern Finance Association, vol. 24(4), pages 541-50, November.
  24. Gultekin, Mustafa N. & Gultekin, N. Bulent, 1983. "Stock market seasonality : International Evidence," Journal of Financial Economics, Elsevier, vol. 12(4), pages 469-481, December. [Downloadable!] (restricted)
  25. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December. [Downloadable!] (restricted)
  26. Kato, Kiyoshi & Schallheim, James S., 1985. "Seasonal and Size Anomalies in the Japanese Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 243-260, June. [Downloadable!]
  27. Jonathan B. Berk, 2000. "Sorting Out Sorts," Journal of Finance, American Finance Association, vol. 55(1), pages 407-427, 02. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Michael E. Drew & Mirela Mallin & Tony Naughton & Madhu Veeraraghavan, 2004. "Equity Premium: - Does it exist? Evidence from Germany and United Kingdom," School of Economics and Finance Discussion Papers and Working Papers Series 170, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS uses the data collected within the RePEc project, the largest online bibliographic database in Economics.

This page was last updated on 2009-11-29.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.