Idiosyncratic Risk in Emerging Markets

Timotheos Angelidis

No 18, Working Papers from University of Peloponnese, Department of Economics

Abstract: In this study, the properties and portfolio management implications of the value-weighted idiosyncratic volatility in 24 emerging markets are examined. The paper provides evidence against the view that the rise of idiosyncratic risk is a global phenomenon. Furthermore, specific and market risks jointly predict market returns as there is a negative (positive) relation between idiosyncratic (market) risk and subsequent stock returns. Idiosyncratic volatility is the most important component of tracking error volatility and it does not exhibit either an upward or a downward trend. Thus, investors do not have to increase, on an average, the number of stocks that they hold, to keep the active risk constant.

Keywords: Emerging markets; Idiosyncratic risk; Portfolio management; Tracking error volatility. (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Journal Article: Idiosyncratic Risk in Emerging Markets (2010)
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