The Investigation of the Importance of Individual Securities Idiosyncratic Risk: Another Look at Idiosyncratic Risk and Expected Returns

Document Type : Research Paper

Authors

1 MSc. In Financial Management, Faculty of Accounting and Management, Shahid Beheshti University, Tehran, Iran

2 Associate Prof, Faculty of Accounting and Management, Shahid Beheshti University, Tehran, Iran

Abstract

This study investigates the relationship between idiosyncratic risk and return based on the model (GARCH)-in-mean for individual by individual securities in Tehran Stock Exchange during the period from 2001 to 2015. The evidence suggests that, on average, 27% of stocks experienced a significant relationship between idiosyncratic risk and return. This is the way that companies with a negative relationship comprise a far greater proportion than those with a positive relationship in changes with the proportion of all securities (19%). The results of investigating the effect of characteristics on the probability of a significant relationship between returns and idiosyncratic risk indicate that some characteristics influence the probability of a positive and a negative relationship, while the rest of characteristics appear to affect only a positive or negative relationship. This evidence implies that the factors that explain a positive connection between idiosyncratic risk and returns are different from the factors that explain a negative connection.
 

Keywords

References

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History

  • Receive Date: 07 December 2016
  • Revise Date: 18 March 2018
  • Accept Date: 06 May 2018

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