Does Idiosyncratic Volatility Matter? New Zealand Evidence

Michael Drew, Alastair Marsden and Madhu Veeraraghavan ()
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Alastair Marsden: Department of Accounting and Finance, The University of Auckland Business School, Private Bag 92019, Auckland, New Zealand
Madhu Veeraraghavan: Department of Accounting and Finance, Monash University, Clayton Campus, Victoria 3800, Melbourne, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2007, vol. 10, issue 03, 289-308

Abstract: Standard asset pricing models ignore idiosyncratic risk. In this study, we examine if idiosyncratic or unique risk affects returns for New Zealand stocks using the factor portfolio mimicking approach of Fama and French (1993, 1996). We find evidence of a negative relationship between firm size and a stock's idiosyncratic volatility. We also find that high idiosyncratic volatility firms have high betas and generate low earnings on book equity.

Keywords: Idiosyncratic volatility; asset pricing; unique risk; JEL Classification: G120; JEL Classification: G150 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S0219091507001070

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