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Idiosyncratic Risk in Emerging Markets

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  • Timotheos Angelidis

Abstract

In this study, the properties and portfolio management implications of the value-weighted idiosyncratic volatility in 24 emerging markets are examined. The paper provides evidence against the view that the rise of idiosyncratic risk is a global phenomenon. Furthermore, specific and market risks jointly predict market returns as there is a negative (positive) relation between idiosyncratic (market) risk and subsequent stock returns. Idiosyncratic volatility is the most important component of tracking error volatility and it does not exhibit either an upward or a downward trend. Thus, investors do not have to increase, on an average, the number of stocks that they hold, to keep the active risk constant.

Suggested Citation

  • Timotheos Angelidis, 2008. "Idiosyncratic Risk in Emerging Markets," Working Papers 0018, University of Peloponnese, Department of Economics.
    • Handle: RePEc:uop:wpaper:0018
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    File URL: http://econ.uop.gr/~econ/RePEc/pdf/EM.pdf
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    Cited by:

    1. Tan, Monica & Liu, Bin, 2016. "CEO's managerial power, board committee memberships and idiosyncratic volatility," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 21-30.
    2. Korkmaz, Turhan & Çevik, Emrah İ. & Atukeren, Erdal, 2012. "Return and volatility spillovers among CIVETS stock markets," Emerging Markets Review, Elsevier, vol. 13(2), pages 230-252.
    3. Lumengo Bonga-Bonga & Ekerete Umoetok, 2016. "The effectiveness of index futures hedging in emerging markets during the crisis period of 2008-2010: Evidence from South Africa," Applied Economics, Taylor & Francis Journals, vol. 48(42), pages 3999-4018, September.
    4. Flavia Corneli, 2009. "The Saving Glut Explanation of Global Imbalances: the Role of Underinvestment," Economics Working Papers ECO2009/41, European University Institute.
    5. Sergio Ortobelli Lozza & Enrico Angelelli & Daniele Toninelli, 2011. "Set-Portfolio Selection with the Use of Market Stochastic Bounds," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 5-24, November.
    6. Nartea, Gilbert V. & Wu, Ji & Liu, Zhentao, 2013. "Does idiosyncratic volatility matter in emerging markets? Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 137-160.
    7. Stavros Degiannakis & Andreas Andrikopoulos & Timotheos Angelidis & Christos Floros, 2013. "Return dispersion, stock market liquidity and aggregate economic activity," Working Papers 166, Bank of Greece.
    8. Mohamed Masry & Heba El Menshawy, 2018. "The Impact of Unsystematic Risk on Stock Returns in an Emerging Capital Markets (ECM¡¯s) Country: An Empirical Study," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 9(1), pages 189-202, January.
    9. Mu-Shun Wang, 2013. "Idiosyncratic Volatility and the Expected Stock Returns for Exploring the Relationship with Panel Threshold Regression," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 20(2), pages 113-129, May.
    10. Umutlu, Mehmet, 2019. "Does idiosyncratic volatility matter at the global level?," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 252-268.
    11. Pithak Srisuksai, 2012. "Idiosyncratic Volatility and Expected Stock Returns: Evidence from Thailand," Applied Economics Journal, Kasetsart University, Faculty of Economics, Center for Applied Economic Research, vol. 19(2), pages 66-89, December.
    12. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
    13. Charee Kwak, 2017. "The Effect of Corporate International Diversification on Firm Risk," Discussion Papers 2017-17, Kobe University, Graduate School of Business Administration.
    14. Laura Arenas & Ana Maria Gil-Lafuente, 2021. "Regime Switching in High-Tech ETFs: Idiosyncratic Volatility and Return," Mathematics, MDPI, vol. 9(7), pages 1-25, March.
    15. Chia-Hao Lee & Pei-I Chou, 2012. "Trading Activity and Financial Market Integration," The Financial Review, Eastern Finance Association, vol. 47(3), pages 589-616, August.

    More about this item

    Keywords

    Emerging markets; Idiosyncratic risk; Portfolio management; Tracking error volatility.;
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