Idiosyncratic volatility and expected return in the Australian market

Date
2010
Authors
Hur, Thomas
Supervisor
Tourani-Rad, Alireza
Frijns, Bart
Item type
Thesis
Degree name
Master of Business
Journal Title
Journal ISSN
Volume Title
Publisher
Auckland University of Technology
Abstract

After Ang, Hodrick, Xing and Zhang (2006) found a negative relationship between idiosyncratic volatility and return, researchers have extensively debated the relationship between the two. Previous literature however has been limited to cross-sectional analyses which can be biased if firm and time effects exist in data. This research adopts the twodimensional clustered standard errors approach, recommended by Petersen (2009) and Thompson (2009) and finds a negative relationship between idiosyncratic risk and expected return in the Australian market over the period of August 1999 to February 2010. The negative relationship is even clearly shown among the above average size equities. In addition, the Australian equities returns are positively related to size and book-to-market ratio on the two-dimensional clustered standard errors approach.

Description
Keywords
Australian stock market , Idiosyncratic volatility , Two dimensional standard error , Panel data , Fama French factor , Fama MacBeth regression
Source
DOI
Publisher's version
Rights statement