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Korean Journal of Financial Studies 2011;40(3):525-550.
Published online June 30, 2011.
The Relationship between Idiosyncratic Volatility and Expected Returns in the Korea Stock Markets
Tae Hyuk Kim, Young Tae Byun
한국 주식시장에서 3요인 모형을 이용한 주식수익률의 고유변동성과 기대수익률 간의 관계
김태혁, 변영태
Abstract
This study investigates the relationship between idiosyncratic volatility and expected returns in Korean stock market. For equal-weighted and value-weighted portfolios classified by size, this study measured idiosyncratic volatility employing Fama-French three factor model and analyzed the relationship between stock returns and idiosyncratic volatility. Then, several robustness tests were conducted to control for potential cross-sectional pricing effects due to size, book-to-market ratio, trading volume, turnover ratio, PER, PCR, and coskewness. Such factors as short- and long-run behavior of stock returns, changes of trading strategies, exclusion of IPO firms were also considered for additional robustness checks. The major findings of this study are as follows: 1) Stock returns are negatively related to idiosyncratic volatility for equal-weighted portfolios. It means that portfolios with high idiosyncratic volatility have significantly lower return than portfolios with low idiosyncratic volatility. 2) The negative relationship between idiosyncratic volatility and stock returns is robust to controlling for fundamental variables, short-and long-run behavior of stock returns, systematic volatility, change of trading strategies, and continuous listed firms. It implies that idiosyncratic volatility is one of important asset pricing determinants in Korean stock market.
Key Words: 고유변동성,기대수익률,기본적변수,모멘텀,Expected Returns,Fama-French 3요인 모형,Fama-French Three Factor Model,Fundamental Variables,Idiosyncratic Volatility,Momentum


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