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.
Impact and interest:
Citation counts are sourced monthly from and citation databases.
These databases contain citations from different subsets of available publications and different time periods and thus the citation count from each is usually different. Some works are not in either database and no count is displayed. Scopus includes citations from articles published in 1996 onwards, and Web of Science® generally from 1980 onwards.
Citations counts from theindexing service can be viewed at the linked Google Scholar™ search.
Full-text downloads displays the total number of times this work’s files (e.g., a PDF) have been downloaded from QUT ePrints as well as the number of downloads in the previous 365 days. The count includes downloads for all files if a work has more than one.
|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|
|Last Modified:||10 Aug 2011 18:03|
Repository Staff Only: item control page