Equity Anomalies and Idiosyncratic Risk Around the World

Steve Fan (), Scott Opsal and Linda Yu
Additional contact information
Steve Fan: University of Wisconsin - Whitewater, USA
Scott Opsal: University of Wisconsin - Whitewater, USA
Linda Yu: University of Wisconsin - Whitewater, USA

Multinational Finance Journal, 2015, vol. 19, issue 1, 33-75

Abstract: In this study, we examine how idiosyncratic risk is correlated with a wide array of anomalies, including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals, in international equity markets. We use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. We provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. In addition, we find that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries. Our results support the mispricing explanation of the existence of various anomalies across global markets.

Keywords: anomalies; idiosyncratic risk; international equity markets; limits of arbitrage (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.mfsociety.org/modules/modDashboard/uplo ... 98s7fhm1jr717ud4.pdf (application/pdf)
http://www.mfsociety.org/modules/modDashboard/uplo ... ogleScholar/927.html (text/html)

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:mfj:journl:v:19:y:2015:i:1:p:33-75

Access Statistics for this article

Multinational Finance Journal is currently edited by Panayiotis C. Andreou

More articles in Multinational Finance Journal from Multinational Finance Journal Contact information at EDIRC.
Bibliographic data for series maintained by Theodossiou Panayiotis ().