Does Idiosyncratic Volatility Matter? New Zealand Evidence

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Drew, ME
Marsden, A
Veeraraghavan, M
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2007
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Abstract

Standard asset pricing models ignore idiosyncratic risk. In this study, we examine if idiosyncratic or unique risk affects returns for New Zealand stocks using the factor portfolio mimicking approach of Fama and French (1993, 1996). We find evidence of a negative relationship between firm size and a stock's idiosyncratic volatility. We also find that high idiosyncratic volatility firms have high betas and generate low earnings on book equity.

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Review of Pacific Basin Financial Markets and Policies

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10

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3

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Banking, finance and investment

Banking, finance and investment not elsewhere classified

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