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Idiosyncratic volatility and security returns: Australian evidence

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  • Bernard Bollen
  • Anthony Skotnicki
  • Madhu Veeraraghavan

Abstract

This article examines whether idiosyncratic risk is priced for equities listed in the Australian Stock Exchange (ASX). Specifically, this article follows the methodology of Bali et al. (2005) and investigates whether idiosyncratic volatility is able to predict 1-month ahead excess returns on the value-weighted market index (the All Ordinaries Index-AOI), over the period 1980:01 to 2004:12. We also investigate whether the idiosyncratic volatility is priced differently in partitioned subperiods. Our findings suggest that idiosyncratic volatility is not priced in the Australian market.

Suggested Citation

  • Bernard Bollen & Anthony Skotnicki & Madhu Veeraraghavan, 2009. "Idiosyncratic volatility and security returns: Australian evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 19(19), pages 1573-1579.
    • Handle: RePEc:taf:apfiec:v:19:y:2009:i:19:p:1573-1579
    DOI: 10.1080/09603100902984327
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    Cited by:

    1. Gurudeo Anand Tularam & Rajibur Reza, 2016. "Water exchange traded funds: A study on idiosyncratic risk using Markov switching analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1139437-113, December.
    2. Bin Liu & Amalia Di Iorio, 2016. "The pricing of idiosyncratic volatility: An Australian study," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 353-375, May.
    3. Zhong, Angel, 2018. "Idiosyncratic volatility in the Australian equity market," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 105-125.
    4. Tienyu Hwang & Simon Gao & Heather Owen, 2012. "A two‐pass model study of the CAPM: evidence from the UK stock market," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 29(2), pages 89-104, June.
    5. Daniel Chai & Robert Faff & Philip Gharghori, 2013. "Liquidity in asset pricing: New Australian evidence using low-frequency data," Australian Journal of Management, Australian School of Business, vol. 38(2), pages 375-400, August.
    6. Tienyu Hwang & Simon Gao & Heather Owen, 2014. "Markowitz efficiency and size effect: evidence from the UK stock market," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 721-750, November.
    7. Bin Liu & Monica Tan & Marie-Anne Cam, 2019. "Reinvestigate the Bid–Ask Bounce Effect and Pricing of Idiosyncratic Volatility: The Case of the Australian Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-23, March.

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