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Does idiosyncratic volatility matter in emerging markets? Evidence from China

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  • Nartea, Gilbert V.
  • Wu, Ji
  • Liu, Zhentao

Abstract

We investigate the time series behavior of idiosyncratic volatility and its role in asset pricing in China. We find no evidence of a long-term trend in the time series behavior of idiosyncratic volatility. Idiosyncratic volatility in China is best characterized by an autoregressive process with regime shifts that coincide with structural market reforms. We also document evidence of a negative idiosyncratic volatility effect in China with anecdotal evidence suggesting that it could be driven by investor preference for high idiosyncratic volatility stocks.

Suggested Citation

  • Nartea, Gilbert V. & Wu, Ji & Liu, Zhentao, 2013. "Does idiosyncratic volatility matter in emerging markets? Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 137-160.
    • Handle: RePEc:eee:intfin:v:27:y:2013:i:c:p:137-160
    DOI: 10.1016/j.intfin.2013.09.002
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    7. Nartea, Gilbert V. & Kong, Dongmin & Wu, Ji, 2017. "Do extreme returns matter in emerging markets? Evidence from the Chinese stock market," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 189-197.
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    More about this item

    Keywords

    Idiosyncratic volatility; Regime-switching; Emerging markets; China;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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