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Prospect theory value and idiosyncratic volatility: Evidence from the Korean stock market

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  • Son, Nguyen Truong
  • Nguyen, Nhat Minh

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.

Suggested Citation

  • Son, Nguyen Truong & Nguyen, Nhat Minh, 2019. "Prospect theory value and idiosyncratic volatility: Evidence from the Korean stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 21(C), pages 113-122.
    • Handle: RePEc:eee:beexfi:v:21:y:2019:i:c:p:113-122
    DOI: 10.1016/j.jbef.2018.11.006
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    More about this item

    Keywords

    Prospect theory value; Idiosyncratic volatility; Realized idiosyncratic volatility; Expected idiosyncratic volatility;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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