Does idiosyncratic volatility predict future growth of the Australian economy?

Bin Liu and Amalia Di Iorio

Studies in Economics and Finance, 2016, vol. 33, issue 1, 69-90

Abstract: Purpose - – This paper aims to examine whether idiosyncratic volatility and other asset pricing factors predict growth rates of the ten Australian economic indicators. Design/methodology/approach - – The authors use the Liew and Vassalou (2000) model augmented with an idiosyncratic volatility factor to investigate the issue. Findings - – Using regression analysis, the authors find that the asset pricing factors can be used to predict the growth rates for eight out of the ten economic indicators. Moreover, using portfolio performance analysis, the authors find that high returns of size factor and a book-to-market factor portfolios precede periods of good macroeconomic states, whereas high returns of HIMLI portfolios precede periods of bad macroeconomic states. Originality/value - – To the authors’ knowledge, the relationship between idiosyncratic volatility and Australian economic growth has not been investigated explicitly in the literature.

Keywords: Australia; Economic indicators; Book-to-market; Size; Fama and French three-factor; Idiosyncratic volatility; G11; G12; G15 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:v:33:y:2016:i:1:p:69-90

DOI: 10.1108/SEF-08-2014-0160

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