Abstract
This paper aims to examine the relation between idiosyncratic volatility (IVOL) and stock returns with full-sample and conditional alpha sub-samples in Vietnam stock market covering the period from...
Highlights
Finance theories have early ignored the role of idiosyncratic risk as important factor in asset pricing model (Lintner, 1965; Mossin, 1966; Treynor, 1961 2016)
In this paper we investigate the link between idiosyncratic volatility and stock returns in Vietnam stock market
Morck, Yeung, and Yu (2000) theoretically support that the role of idiosyncratic risk in total risk is considered as a factor to measure effective market level and it has been treated as an important factor in the research of diversified portfolio
Summary
Finance theories have early ignored the role of idiosyncratic risk as important factor in asset pricing model (Lintner, 1965; Mossin, 1966; Treynor, 1961 2016). Fama and MacBeth (1973) support that there is no relation between idiosyncratic risk and expected returns in efficient market. It means that portfolios are separated according to idiosyncratic volatility (IOVL) display no difference in its average excess returns; that is defined as return of stocks minus riskfree rate. Firms with larger total variance (or idiosyncratic risk) yield the higher stock returns to cover risk due to imperfect diversification. Morck, Yeung, and Yu (2000) theoretically support that the role of idiosyncratic risk in total risk is considered as a factor to measure effective market level and it has been treated as an important factor in the research of diversified portfolio
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