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Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence

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  • Gökgöz Fazil
  • Altintaş İpek

Abstract

In finance literature, Capital Asset Pricing Model predict only systematic risk is priced in equilibrium and neglect firm specific (idiosyncratic) risk which can be eliminated by diversification. However in real world investors, who are disable to diversify their portfolios, should take into consideration idiosyncratic risk beside of systematic risk in prediction of expected return. In this article, we examine real market conditions in Istanbul Stock Exchange (ISE), an emerging market stock exchange, over the period 2007:01 to 2010:12 by studying market wide and idiosyncratic volatility following the methodology of Campbell et al.(2001). Our findings suggest that, in 2007-2010 period, idiosyncratic volatility is the biggest component of total volatility and shows no trend in this period. Beside that our analyses about the predictive ability of various measures of idiosyncratic risk provide evidence that idiosyncratic volatility is not a significant predictor for future return.

Suggested Citation

  • Gökgöz Fazil & Altintaş İpek, 2013. "Does Idiosyncratic Volatility Matter in the Emerging Markets? Istanbul Stock Exchange Evidence," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 26(3), pages 133-150, January.
    • Handle: RePEc:taf:reroxx:v:26:y:2013:i:3:p:133-150
    DOI: 10.1080/1331677X.2013.11517626
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    Cited by:

    1. Reis, Pedro Nogueira & Pinto, António Pedro Soares, 2024. "Unlocking portfolio resilient and persistent risk: A holistic approach to unveiling potential grounds," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).

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