Abstract
In this paper, we considered the impact of prospect theory value, as shown in Barberis et al. (2016), regarding the relationship between idiosyncratic volatility and future returns in the Korean stock market, from July, 2000 to June, 2016. We found a positive relationship between prospect theory values and future returns, and notably, the negative relationship between idiosyncratic volatility and future returns is driven by prospect theory value levels, especially negative ones. This finding are robust after controlling for several factors, such as market beta, return reversals, momentum, liquidity, coskewness, and idiosyncratic skewness.
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