 Idiosyncratic volatility and average stock returns: evidence from Sri LankaH.A.P.K. Perera and Tharindu Chamara Ediriwickrama Afro-Asian Journal of Finance and Accounting, 2021, vol. 11, issue 5, 740-754 Abstract: Conventionally, it is believed that the idiosyncratic volatility should not be priced at market equilibrium as it can be eliminated through diversification. Despite the presence of inconsistent empirical evidence on idiosyncratic volatility, the current study aims to investigate the presence of idiosyncratic volatility from a frontier market such as Sri Lanka. Employing the Fama and French five-factor model together with the exponential generalised autoregressive conditional heteroskedasticity (EGARCH), the conditional idiosyncratic volatility of individual stocks of non-financial firms listed on the Colombo Stock Exchange (CSE) was estimated. This study reveals the presence of idiosyncratic volatility of stocks in Sri Lanka. The results further indicate though the idiosyncratic volatility of stocks is useful in explaining the average stock returns, it is still questionable as to why there is a demand in the market for small stocks with high idiosyncratic volatility since the critical weaknesses in asset pricing models are mostly coupled with the small stocks. Keywords: Colombo Stock Exchange; EGARCH; five-factor asset pricing model; frontier market; idiosyncratic volatility; Sri Lanka. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:afasfa:v:11:y:2021:i:5:p:740-754 Access Statistics for this article More articles in Afro-Asian Journal of Finance and Accounting from Inderscience Enterprises Ltd |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.