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Does idiosyncratic risk matter? Evidence from European stock markets

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  • Timotheos Angelidis
  • Nikolaos Tessaromatis

Abstract

This article examines if idiosyncratic risk can forecast stock returns for 10 European markets. We found little evidence to suggest that idiosyncratic volatility, equally or value weighted, can predict future stock market returns. However, we found that idiosyncratic risk measured as the equally weighted average variance of all stocks can significantly predict future size and value premia.

Suggested Citation

  • Timotheos Angelidis & Nikolaos Tessaromatis, 2007. "Does idiosyncratic risk matter? Evidence from European stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(2), pages 125-137.
    • Handle: RePEc:taf:apfiec:v:18:y:2007:i:2:p:125-137
    DOI: 10.1080/09603100601118276
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    References listed on IDEAS

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    1. Hui Guo & Robert Savickas, 2003. "Does idiosyncratic risk matter: another look," Working Papers 2003-025, Federal Reserve Bank of St. Louis.
    2. Mr. Anthony J. Richards, 1999. "Idiosyncratic Risk: An Empirical Analysis, with Implications for the Risk of Relative-Value Trading Strategies," IMF Working Papers 1999/148, International Monetary Fund.
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    Cited by:

    1. W K Adrian Cheung & Huimin Li & Eduardo Roca, 2010. "The Performance of Socially Responsible Investments Across Different Market Regimes," Discussion Papers in Finance finance:201018, Griffith University, Department of Accounting, Finance and Economics.
    2. Miralles-Marcelo, José Luis & Miralles-Quirós, María del Mar & Miralles-Quirós, José Luis, 2012. "Asset pricing with idiosyncratic risk: The Spanish case," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 261-271.

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