| Summary: | 碩士 === 中原大學 === 國際貿易研究所 === 98 === Abstract
The vast literature on asset pricing mainly focuses on the role of systematic risk, and less on idiosyncratic volatility. Based on this consideration, in this study, we take the component companies in the Taiwan 50 Index as sample objects to study the relationship between idiosyncratic volatility and future market returns, and to realize what’s the role of idiosyncratic volatility plays in the asset pricing.
First, this study employs Xu and Malkiel’s (2003) method to construct the total market volatility, market volatility and the idiosyncratic volatility, and divides the whole sample companies into large-scaled group and small-scaled group; then explore the relationship between the idiosyncratic volatility and market return under different average basis(equal and weighted). In addition, according to Angelidis and Tessaromatis’ (2008) method, the study classifies the return into the value premium, size premium and orthogonal market returns, and explores the relationship between idiosyncratic volatility and the three premiums.
The empirical evidences show: (1) the lagged of idiosyncratic volatility has significant negative impact on stock market returns, and this result exists especially for small-scaled stocks ; (2) the relationship between the idiosyncratic volatility in small stock and the orthogonal market return is significant negative, which is caused by the significant relationship between the idiosyncratic of small-scaled stock and market return.
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