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  • Idiosyncratic volatility and security returns: evidence from Germany and United Kingdom

    Author(s)
    Drew, ME
    Malin, M
    Naughton, T
    Veeraraghavan, M
    Griffith University Author(s)
    Drew, Michael E.
    Veeraraghavan, Madhu
    Malin, Mirela D.
    Year published
    2006
    Metadata
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    Abstract
    Abstract: Purpose - Malkiel and Xu state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. The purpose of this paper is to ask whether idiosyncratic volatility is useful in explaining the variation in expected returns; and whether the findings can be explained by the turn of the year effect. Design/methodology/design - Monthly stock returns and market values of all listed firms in Germany and UK covering the period 1991-2001 from Datastream are used as the basis of the evaluation. Findings - The paper finds that the three-factor model provides ...
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    Abstract: Purpose - Malkiel and Xu state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. The purpose of this paper is to ask whether idiosyncratic volatility is useful in explaining the variation in expected returns; and whether the findings can be explained by the turn of the year effect. Design/methodology/design - Monthly stock returns and market values of all listed firms in Germany and UK covering the period 1991-2001 from Datastream are used as the basis of the evaluation. Findings - The paper finds that the three-factor model provides a better description of expected returns than the Capital Asset Pricing Model (CAPM). That is, it is found that firm size and idiosyncratic volatility are related to security returns. In addition, it is noted that the findings are robust throughout the sample period.
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    Journal Title
    Studies in Economics and Finance
    Volume
    23
    Issue
    2
    DOI
    https://doi.org/10.1108/10867370610683897
    Subject
    Applied Economics
    Banking, Finance and Investment
    Publication URI
    http://hdl.handle.net/10072/14025
    Collection
    • Journal articles

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