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Equity Premium: - Does it exist? Evidence from Germany and United Kingdom

Drew, Michael E., Mallin, Mirela, Naughton, Tony, & Veeraraghavan, Madhu (2004) Equity Premium: - Does it exist? Evidence from Germany and United Kingdom. . [Working Paper] (Unpublished)

Abstract

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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645 since deposited on 16 Aug 2004
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ID Code: 352
Item Type: Working Paper
Keywords: idiosyncratic volatility, variation, returns, three, factor model, capm, size effect
ISSN: 1324-5910
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
Last Modified: 11 Aug 2011 04:03

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