Extreme returns and the idiosyncratic volatility puzzle: African evidence

Ji Wu, Eze Peter Chimezie, Gilbert Nartea and Jing Zhang

Applied Economics, 2019, vol. 51, issue 58, 6264-6279

Abstract: We examine the cross-sectional relationship between the expected stock return and both the maximum daily return (MAX) and the idiosyncratic volatility (IVOL) in the five largest emerging African stock markets over the period from 2001 to 2015. First, we find that there is a robust and significantly negative MAX effect in the pooled African stock markets. Second, though we initially document a negative IVOL effect, it disappears after controlling for MAX. Finally, the negative MAX effect is only significant in the small-SIZE, high-illiquidity and high-skewness portfolios. Our results suggest risk-seeking behaviour among African investors similar to that in other parts of the world.

Date: 2019
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DOI: 10.1080/00036846.2019.1631442

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