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Korean Journal of Financial Studies 2015;44(5):1031-1063.
Published online December 31, 2015.
An Empirical Study on the Relation between Absolute Firm-Specific Return and Future Stock Return
Ryumi Kim, Joon Chae
절대고유수익률과 미래 주식수익률의 관계에 관한 실증연구
김류미, 채준
Abstract
According to the asset pricing theory such as APT or factor model, both systematic risk factor and firm-specific risk factor affect real movement of individual stock price: firmspecific risk factor explains the difference between realized stock return in market and expected return by asset pricing model, as systematic risk factor determines expected return. This study investigates the relation between absolute firm-specific return and future stock return, using all non-financial firms in Korean stock market for the period from 1987 to 2011. Firm-specific return is estimated by Fama-French 3 Factor model. We find that portfolio with low absolute firm-specific return outperforms portfolio with high absolute firm-specific return over the next period. This result is always significant regardless of formation period and holding period of portfolio. Furthermore, the negative relationship between absolute firm-specific return and future stock returns is robust to controlling for firm size, book-to-market ratio, systematic risk, idiosyncratic volatility, and trading volume. Finally, to examine the possibility that this result is induced from specific short period, we divide the sample into 5-year subperiod samples and analyze the performance of our study. Except the first 5-year subperiod, the portfolio with low absolute firmspecific return outperforms in every subperiod, and this relation is increasingly stronger in recent period than in the past. As a result, this study is contributed to show that the absolute firm-specific return caused by idiosyncratic component has the predictability of future stock price in Korean stock market.
Key Words: 기업고유수익률,기업고유정보,미래 주식수익률,절대고유수익률,Absolute Firm-Specific Return,Fama-French 3 Factor Model,Fama-French 3요인 모형,Firm-Specific Return,Future Stock Return,Idiosyncratic Information


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