Market Volatility Risk and Stock Returns around the World: Implications for Multinational Corporations

52 Pages Posted: 14 Feb 2013 Last revised: 31 Jan 2020

See all articles by Samuel Xin Liang

Samuel Xin Liang

Ryerson University

K.C. John Wei

Hong Kong Polytechnic University

Date Written: December 21, 2018

Abstract

We investigate the pricing of market volatility risk as a risk factor – the innovation risk and as a characteristic risk – the level risk. We find that the pricing of the country-level (local) market volatility risk factor is not robust across 21 developed markets and that the global market volatility risk factor prices 21 developed market portfolios after controlling for global market, value, and size factors. Capturing various market information, idiosyncratic market volatility as a country-specific characteristic risk dominates global market, value, size, and market volatility risk factors in predicting returns of market portfolios. Countries with higher investor protection and accounting standards have higher country-specific market volatility. Market volatility is higher in these countries because corporate managers take higher risks on innovative projects that benefit economic growth.

Keywords: Market Volatility risk; global volatility risk; total market volatility, idiosyncratic market volatility; market portfolio return; cost of capital

JEL Classification: G11, G12, G15

Suggested Citation

Liang, Samuel Xin and Wei, Kuo-Chiang (John), Market Volatility Risk and Stock Returns around the World: Implications for Multinational Corporations (December 21, 2018). Asian Finance Association (AsFA) 2013 Conference, Available at SSRN: https://ssrn.com/abstract=2217622 or http://dx.doi.org/10.2139/ssrn.2217622

Samuel Xin Liang (Contact Author)

Ryerson University ( email )

55 Dundas St W,
Toronto, Ontario M5G 2C3
Canada

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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