Idiosyncratic Volatility and Expected Stock Returns: Evidence from Thailand

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Pithak Srisuksai

Abstract

This paper demonstrates the finding that time-varying expected idiosyncratic volatility has a significant and positive effect on expected stock returns for individual stocks as well as stock sectors. The positive relation remains after controlling for liquidity variables. The second finding is that time-varying expected market volatility has a significanteffect on expected stock returns for both individual stocks and stock sectors, which is consistent with the traditional capital asset pricing model. Although the models control for liquidity variables, the significantly positive relation still exists. In addition, expected idiosyncratic volatility plays a more important role than expected market volatility in determining expected stock returns in the case of individual stocks. In contrast, expected market volatility plays a more important role than expected idiosyncratic volatility in the case of stock sectors.

Keywords : idiosyncratic volatility, market volatility, liquidity, expected stock return

JEL Classification : C33, G12

Article Details

How to Cite
Srisuksai, P. (2013). Idiosyncratic Volatility and Expected Stock Returns: Evidence from Thailand. Asian Journal of Applied Economics, 19(2), 66–89. Retrieved from https://so01.tci-thaijo.org/index.php/AEJ/article/view/10318
Section
Research Articles