Review article
DOES IDIOSYNCRATIC VOLATILITY MATTER IN THE EMERGING MARKETS? ISTANBUL STOCK EXCHANGE EVIDENCE
Fazil Gokgoz
Ipek Altintas
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.
Keywords
Volatility; Firm Specific RiskŽ; Idiosyncratic Volatility; Turkey
Hrčak ID:
109121
URI
Publication date:
1.10.2013.
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