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

Michael Drew, Mirela Malin, Tony Naughton and Madhu Veeraraghavan

Studies in Economics and Finance, 2006, vol. 23, issue 2, 80-93

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 Originality/value - The paper shows that the CAPM beta alone is not sufficient to explain the variation in stock returns.

Keywords: Stock returns; Market value; Capital asset pricing model; Germany; United Kingdom (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:10867370610683897

DOI: 10.1108/10867370610683897

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().