Idiosyncratic risk and expected returns in frontier markets: Evidence from GCC

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• 作者：Jorg Bley¹ ; ^{jbley@aus.edu} ; Mohsen Saad ; ^{msaad@aus.edu}
• 关键词：Idiosyncratic risk ; Expected stock returns ; GCC markets
• 刊名：Journal of International Financial Markets ; Institutions & Money
• 出版年：2012
• 期刊代码：45_10424431
• 类别：eco
• 出版时间：July, 2012
• 卷：22
• 期：3
• 页码：538-554
• 文件大小：391 K

摘要

We investigate the pricing of idiosyncratic volatility of seven frontier markets in six GCC countries. We find a significant (marginal) negative relationship between expected returns and lagged idiosyncratic volatility for individual stocks in Saudi Arabia (Qatar) but none in Kuwait and Abu Dhabi. However, when we estimate conditional idiosyncratic volatility either by EGARCH or AR Models, the relationship turns positive. Introducing unexpected idiosyncratic volatility as an explanatory variable to control for any unexpected returns uncovers the true relationship between expected idiosyncratic volatility and expected returns. The evidence turns out to be robust for return reversals and other control variables. Moreover, the pricing of idiosyncratic risk is less evident in higher country governance and seems to be unrelated to the degree of financial development.