Equity Premium: - Does it exist? Evidence from Germany and United Kingdom
Malkiel and Xu (1997) state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. In this paper we ask (a) whether idiosyncratic volatility is useful in explaining the variation in expected returns; and, (b) whether our findings can be explained by the turn of the year effect. We find that (a) our three-factor model provides a better description of expected returns than the CAPM. That is, we find that firm size and idiosyncratic volatility are related to security returns. In addition, we also find that our findings are robust throughout the sample period. We show that the CAPM beta alone is not sufficient to explain the variation in stock returns.
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|Item Type:||Working Paper|
|Keywords:||idiosyncratic volatility, variation, returns, three, factor model, capm, size effect|
|Subjects:||Australian and New Zealand Standard Research Classification > ECONOMICS (140000)|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School|
|Copyright Owner:||Copyright 2004 (please consult author)|
|Deposited On:||16 Aug 2004 00:00|
|Last Modified:||10 Aug 2011 18:03|
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