<b>Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence</b>

Gökgöz, Fazıl; Altintaş, İpek

doi:10.1080/1331677x.2013.11517626

Cited by 18 publications

(8 citation statements)

References 30 publications

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“…Traditionally, the Capital Asset Pricing Model (CAPM) has focused on systematic risk, overlooking firm-specific (idiosyncratic) risk, which can't be diversified away. However, in practical scenarios where portfolio diversification isn't feasible, investors must account for idiosyncratic risk alongside systematic risk in predicting expected returns (Fazil & Ipek, 2013;Karki & Aryal, 2019). The study highlighted idiosyncratic risk as a significant component of total volatility.…”

Section: Idiosyncratic Riskmentioning

confidence: 99%

Cross-influence of Risk, Return, and Governance on Decision-Making in Hydropower Investments

Karki

2024

Econ J Dev Issues

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The sustainable growth of an economy pivots on a robust financial system, particularly in the context of capital availability. This study analyzes the behavior of investors towards initial public offerings (IPOs), focusing on the hydropower development sector in Nepal. The research explores the multifaceted relationship between factors such as risk, return, and governance on investor behavior, considering elements like Idiosyncratic risk (IR), timing of issue (TIPO), Bandwagon effect (BE), expected return (ER), sectoral performance (SP), corporate governance (CG), pre-issue financial health (PFH), and marketability (MKT). Additionally, sociodemographic variables and their connection to investor behavior are examined. Employing a descriptive research design, the study involves a sample size of 392 individuals, selected through a convenient sampling method. The study's main finding documented that idiosyncratic risks, expected returns, and corporate governance stand out as crucial factors influencing investment decisions (P < 0.05). Notably, the regression analysis indicated the absence of a significant impact from market risks (P > 0.05), including the bandwagon effect and IPO timing, on investor behavior towards hydropower IPOs. This finding suggests that Nepalese investors prioritize returns and organizational governance over market risks, despite having significant concerns regarding idiosyncratic risk. The analysis also reveals significant associations between investor behavior and sociodemographic variables like age, education, occupation, and primary investment objectives (P < 0.05). This study offers valuable insights and implications for investors seeking to align investments with their goals. Hydropower developers should prioritize investor protection and transparency, while regulators must enhance disclosures, shareholder accountability, and project oversight.

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Section: Idiosyncratic Riskmentioning

confidence: 99%

Cross-influence of Risk, Return, and Governance on Decision-Making in Hydropower Investments

Karki

2024

Econ J Dev Issues

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“…As also shown in previous studies, due to the recession in the crisis period, high volatility was found in the markets, which is directly associated with strong correlations between markets. Idiosyncratic risk was the biggest component of overall risk during the period of GFC (Fazil and ˙Ipek 2013).…”

Section: Impact Of Crises On Risk Diversificationmentioning

confidence: 99%

How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature

Zaimović

Omanovic

Arnaut-Berilo

2021

JRFM

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Using extensive and comprehensive databases to select a subset of research papers, we aim to critically analyze previous empirical studies to identify certain patterns in determining the optimal number of stocks in well-diversified portfolios in different markets, and to compare how the optimal number of stocks has changed over different periods and how it has been affected by market turmoil such as the Global Financial Crisis (GFC) and the current COVID-19 pandemic. The main methods used are bibliometric analysis and systematic literature review. Evaluating the number of assets which lead to optimal diversification is not an easy task as it is impacted by a huge number of different factors: the way systematic risk is measured, the investment universe (size, asset classes and features of the asset classes), the investor’s characteristics, the change over time of the asset features, the model adopted to measure diversification (i.e., equally weighted versus optimal allocation), the frequency of the data that is being used, together with the time horizon, conditions in the market that the study refers to, etc. Our paper provides additional support for the fact that (1) a generalized optimal number of stocks that constitute a well-diversified portfolio does not exist for whichever market, period or investor. Recent studies further suggest that (2) the size of a well-diversified portfolio is larger today than in the past, (3) this number is lower in emerging markets compared to developed financial markets, (4) the higher the stock correlations with the market, the lower the number of stocks required for a well-diversified portfolio for individual investors, and (5) machine learning methods could potentially improve the investment decision process. Our results could be helpful to private and institutional investors in constructing and managing their portfolios and provide a framework for future research.

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“…In reality however, this is not always the case. Studies has also found that, for some reasons, investors always do not hold diversified portfolio which usually eliminate significantly idiosyncratic volatility as supported by CAPM (Fazil, 2013), and idiosyncratic risk is priced to compensate investors for their inability to hold the market portfolio (Fu, 2009;Eiling, 2008;Fazil, 2013;Boloorforoosh, 2014). With increasing number of empirical studies indicating that financial accounting information affect stock prices volatility (Yu and Huang, 2005;Sharma, 2011;Glezakos, 2012;Sibel, 2013), and with the growth of NSE over the decade, more specificly the growth of active investors, equity turnover and market capitalization; which has led to increased stock price movement and market volatility (Kihara, 2011), there is need to investigate the effect of published financial statement information on idiosyncratic volatility equities price listed at the NSE.…”

Section: Problem Statementmentioning

confidence: 99%

“…Studies has also found that, for some reasons, investors always do not hold diversified portfolio which usually eliminate significantly idiosyncratic volatility as supported by CAPM (Fazil, 2013). Goetzman and Kumar (2008) found that 25% of investors hold only one stock, and 50% of investor portfolios contained less than 3 stocks while less that 10% of their portfolios contain less than 10 stocks.…”

Section: Introductionmentioning

confidence: 98%

Influence of Earnings per Share on Idiosyncratic Volatility of Stock Returns among Listed Firms in Kenya

2019

RJFA

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Idiosyncratic volatility has not always been considered in pricing of financial assets; this is as a result of capital asset pricing model's proposition that idiosyncratic volatility is diversifies away and that investors hold portions of diversified portfolio. In reality however, this is not always the case. Research studies have revealed that investors do not always hold diversified portfolios and idiosyncratic risk is therefore priced in order to compensate their inability to hold the market portfolio, therefore the main objective of the study was to establish the effect of financial statement information on idiosyncratic volatility of stocks return among listed firms in Kenya. Idiosyncratic volatility was the dependent variable while independent variable was Earning Per Share (EPS). The study used correlational and descriptive research design, it also used census technique which targeted all 39 listed companies that existed and their shares were actively traded at the Nairobi Securities Exchange (NSE) from the year 1998 to 2017. STATA was used to generate Descriptive and inferential statistics. The study employed a dynamic panel data regression model, the analysis of variance (ANOVA) was used to reveal the overall model significance, the calculated F-statistic was compared with the tabulated F-statistic and a critical pvalue of 0.05 was used to determine whether the overall model is significant. The study results found that there was a positive and significant relationship between EPS and Idiosyncratic Volatility of stock returns among listed firms in Kenya (r= 0.001, p=0.027), and therefore the null hypotheses were rejected. Based on the findings, the study concluded that, EPS has a significant relationship with Idiosyncratic Volatility of stock returns among listed firms in Kenya. The study recommended that market investors analyst should review their investment strategies taking into consideration EPS in pricing firm specific risk. These indicators will further guide in expanding the interpretation of the financial dynamics in the listed firms at the NSE and other related firms.

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Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence

Cited by 18 publications

References 30 publications

Cross-influence of Risk, Return, and Governance on Decision-Making in Hydropower Investments

Cross-influence of Risk, Return, and Governance on Decision-Making in Hydropower Investments

How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature

Influence of Earnings per Share on Idiosyncratic Volatility of Stock Returns among Listed Firms in Kenya

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