Idiosyncratic Volatility and Cross‐Sectional Stock Returns in Southeast Asian Stock Markets

24 Pages Posted: 3 Nov 2011

See all articles by Gilbert Nartea

Gilbert Nartea

University of Canterbury - College of Business and Law

Bert D. Ward

Lincoln University (MO)

Lee J. Yao

Loyola University New Orleans

Date Written: December 2011

Abstract

We examine the role of idiosyncratic risk in five ASEAN markets of Malaysia, Singapore, Thailand, Indonesia, and the Philippines. Our research was motivated by the findings of Ang et al. (2006, 2009) of a ‘puzzling’ negative relation between idiosyncratic volatility and 1‐month ahead stock returns in developed markets and the suggestion of the ubiquity of these results in other markets. In contrast, we find no evidence of an idiosyncratic volatility puzzle in these Asian stock markets; instead, we document a positive relationship between idiosyncratic volatility and returns in Malaysia, Singapore, Thailand, and Indonesia and no relationship in the Philippines. The idiosyncratic volatility trading strategy could result in significant trading profits in Malaysia, Singapore, Thailand, and to some extent in Indonesia. Our study underscores the fact that generalizing empirical results obtained in developed stock markets to new and emerging markets could potentially be misleading.

Keywords: Cross‐sectional returns, Idiosyncratic volatility, Southeast Asian markets

JEL Classification: G12

Suggested Citation

Nartea, Gilbert and Ward, Bert D. and Yao, Lee J., Idiosyncratic Volatility and Cross‐Sectional Stock Returns in Southeast Asian Stock Markets (December 2011). Accounting & Finance, Vol. 51, Issue 4, pp. 1031-1054, 2011. Available at SSRN: https://ssrn.com/abstract=1953770 or http://dx.doi.org/10.1111/j.1467-629X.2010.00384.x

Gilbert Nartea (Contact Author)

University of Canterbury - College of Business and Law ( email )

Christchurch, 8140
New Zealand

Bert D. Ward

Lincoln University (MO) ( email )

Lee J. Yao

Loyola University New Orleans ( email )

6363 St. Charles Avenue
New Orleans, LA 70118
United States

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