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Idiosyncratic Risk in Emerging Markets

26 Pages Posted: 13 Oct 2010  

Timotheos Angelidis

University of Peloponnese - Department of Economics

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Abstract

In this study, I examine the properties and portfolio management implications of value-weighted idiosyncratic volatility in 24 emerging markets. This paper provides evidence against the view that the rise of idiosyncratic risk is a global phenomenon. Furthermore, specific and market risks jointly predict market returns as there is a negative (positive) relation between idiosyncratic (market) risk and subsequent stock returns. Idiosyncratic volatility is the most important component of tracking error volatility, and it does not exhibit either an upward or a downward trend. Thus, investors do not have to increase, on average, the number of stocks they hold to keep the active risk constant.

Suggested Citation

Angelidis, Timotheos, Idiosyncratic Risk in Emerging Markets. Financial Review, Vol. 45, Issue 4, pp. 1053-1078, November 2010. Available at SSRN: https://ssrn.com/abstract=1691257 or http://dx.doi.org/10.1111/j.1540-6288.2010.00285.x

Timotheos Angelidis (Contact Author)

University of Peloponnese - Department of Economics ( email )

Tripolis, 22100
Greece

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