Does Idiosyncratic Volatility Matter in Emerging Markets? Evidence From China

We investigate the time series behavior of idiosyncratic volatility and its role in asset pricing in China. We find no evidence of a long-term trend in the time series behavior of idiosyncratic volatility. Idiosyncratic volatility in China is best characterized by an autoregressive process with regime shifts that coincide with structural market reforms. We also document evidence of a negative idiosyncratic volatility effect in China with anecdotal evidence suggesting that it could be driven by investor preference for high idiosyncratic volatility stocks.

Keywords: Idiosyncratic volatility, regime-switching, emerging markets, China

JEL Classification: G11, G12

Suggested Citation: Suggested Citation

Nartea, Gilbert and Wu, Ji (George) and Liu, Zhentao, Does Idiosyncratic Volatility Matter in Emerging Markets? Evidence From China (July 31, 2013). Available at SSRN: https://ssrn.com/abstract=2311069 or http://dx.doi.org/10.2139/ssrn.2311069