Returns on financial assets in the stock markets are affected daily by different types of risk, both
internal (systematic) and external (idiosyncratic), to anticipate the possible risks, investors look for tools that
allow them to know the behavior of the market and at the same time identify the risks in which they are
immersed in order to maintain a profitability in the portfolios of investment; t
11.[28 38]distribution of risk and return a statistical test of normality on ...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices from 2002 to 2010. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior required for an efficient market. Additionally, inconsistencies were found between daily and weekly risk and return, suggesting higher returns may be possible without higher risk. The study aims to contribute to evaluating market efficiency and the relationship between risk and return in the Bangladesh capital market.
11.distribution of risk and return a statistical test of normality on dhaka s...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices over different time periods. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior. Additionally, inconsistencies were found between daily/weekly risk and return, suggesting additional return could be achieved without additional risk. The study aims to contribute to evaluating market efficiency assumptions in the Bangladesh capital market.
An empirical analysis of efficiency of the nigerian capital marketAlexander Decker
This study analyzes the efficiency of the Nigerian capital market by testing whether professionally managed funds can beat the market index. Monthly return data from 2007 to 2011 for five banks was used to test the strong form efficiency. The market model was used to estimate residuals and test if abnormal returns of managed portfolios were significantly different from zero. The results found the abnormal returns of professionally managed portfolios were insignificantly different from zero, indicating the Nigerian stock market is efficient in the strong form. The findings recommend fully computerizing the stock exchange and brokerages to maintain strong form efficiency through timely access to price-sensitive information.
This document is a research proposal that aims to investigate the efficiency of the Ghana Stock Exchange through various statistical tests and analyses of time series properties. Specifically, it will examine forms of efficiency, factors associated with efficiency, how efficiency evolves over time, and stochastic properties. The study is justified because understanding an emerging market's efficiency is important for attracting investment and facilitating economic growth. The proposal provides background on definitions of market efficiency and cites several references to situate the research in the relevant literature.
How Vietnam Stock Returns Response to Events AnnouncementBang Vu
This document summarizes the background literature on event study methodology and its application to analyzing stock price movements in response to corporate announcements and events. It discusses how event studies have been widely used in academic finance to test the efficient market hypothesis and analyze issues like the relationship between stock prices and dividends. While event studies have been conducted on developed and emerging markets, this paper aims to be one of the first to apply the methodology to study how Vietnamese stock prices react to earnings announcements, rights issues, and other events over the past decade since the market opened.
The document summarizes research on value investing in emerging markets. It finds that:
1) A simple valuation model can identify emerging markets with higher expected returns compared to average emerging markets.
2) A portfolio of "undervalued" emerging markets identified by the model generates superior returns compared to benchmarks, with statistical significance.
3) Risk measures of the portfolio of undervalued emerging markets are close to risk measures of broader emerging market benchmarks, implying the higher returns are not compensated by significantly higher risk.
Are good companies good stocks evidence from nairobi stock exchangeAlexander Decker
This document summarizes a research study that examined the relationship between company performance and stock performance on the Nairobi Stock Exchange. The study hypothesized that there would be a strong positive correlation between "good companies", defined as those with strong earnings and sales growth, and their stock performance. The researchers analyzed 32 listed companies using correlation analysis and descriptive statistics. The results indicated there is a strong positive correlation between good company performance and good stock performance on the NSE, supporting the hypothesis that good companies tend to be good stocks.
11.[28 38]distribution of risk and return a statistical test of normality on ...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices from 2002 to 2010. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior required for an efficient market. Additionally, inconsistencies were found between daily and weekly risk and return, suggesting higher returns may be possible without higher risk. The study aims to contribute to evaluating market efficiency and the relationship between risk and return in the Bangladesh capital market.
11.distribution of risk and return a statistical test of normality on dhaka s...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices over different time periods. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior. Additionally, inconsistencies were found between daily/weekly risk and return, suggesting additional return could be achieved without additional risk. The study aims to contribute to evaluating market efficiency assumptions in the Bangladesh capital market.
An empirical analysis of efficiency of the nigerian capital marketAlexander Decker
This study analyzes the efficiency of the Nigerian capital market by testing whether professionally managed funds can beat the market index. Monthly return data from 2007 to 2011 for five banks was used to test the strong form efficiency. The market model was used to estimate residuals and test if abnormal returns of managed portfolios were significantly different from zero. The results found the abnormal returns of professionally managed portfolios were insignificantly different from zero, indicating the Nigerian stock market is efficient in the strong form. The findings recommend fully computerizing the stock exchange and brokerages to maintain strong form efficiency through timely access to price-sensitive information.
This document is a research proposal that aims to investigate the efficiency of the Ghana Stock Exchange through various statistical tests and analyses of time series properties. Specifically, it will examine forms of efficiency, factors associated with efficiency, how efficiency evolves over time, and stochastic properties. The study is justified because understanding an emerging market's efficiency is important for attracting investment and facilitating economic growth. The proposal provides background on definitions of market efficiency and cites several references to situate the research in the relevant literature.
How Vietnam Stock Returns Response to Events AnnouncementBang Vu
This document summarizes the background literature on event study methodology and its application to analyzing stock price movements in response to corporate announcements and events. It discusses how event studies have been widely used in academic finance to test the efficient market hypothesis and analyze issues like the relationship between stock prices and dividends. While event studies have been conducted on developed and emerging markets, this paper aims to be one of the first to apply the methodology to study how Vietnamese stock prices react to earnings announcements, rights issues, and other events over the past decade since the market opened.
The document summarizes research on value investing in emerging markets. It finds that:
1) A simple valuation model can identify emerging markets with higher expected returns compared to average emerging markets.
2) A portfolio of "undervalued" emerging markets identified by the model generates superior returns compared to benchmarks, with statistical significance.
3) Risk measures of the portfolio of undervalued emerging markets are close to risk measures of broader emerging market benchmarks, implying the higher returns are not compensated by significantly higher risk.
Are good companies good stocks evidence from nairobi stock exchangeAlexander Decker
This document summarizes a research study that examined the relationship between company performance and stock performance on the Nairobi Stock Exchange. The study hypothesized that there would be a strong positive correlation between "good companies", defined as those with strong earnings and sales growth, and their stock performance. The researchers analyzed 32 listed companies using correlation analysis and descriptive statistics. The results indicated there is a strong positive correlation between good company performance and good stock performance on the NSE, supporting the hypothesis that good companies tend to be good stocks.
Factors affecting stock market prices in amman stock exchangeAlexander Decker
This document summarizes a study that examined factors affecting stock market prices on the Amman Stock Exchange. The study used surveys to collect data on how internal factors like dividend policy, firm size, management quality, and financial situation impact stock prices. It found that inflation had the most impact on prices, while the nature of the firm's business had the least. The study recommended that companies get more involved in drafting laws and regulations to strengthen their role in the stock market.
This document summarizes a study examining the "day of the week effect" on stock returns in the Pakistani stock market between 2006-2010. The study finds evidence of a "Tuesday effect", with average returns on Tuesdays found to be significantly higher than other days of the week. Descriptive statistics show the mean Tuesday return was 164.88 compared to 100.25 on other days. Regression analysis also indicates returns were significantly higher on Tuesdays, violating the assumption of efficient market hypothesis that returns should be constant across all days. Therefore, the study concludes there is a day of the week effect in the Pakistani stock market with abnormal returns observed on Tuesdays.
This document provides an overview of a research project on IPO pricing and growth rates implied in offer prices. It contains an introduction that discusses challenges in valuing IPO firms and approaches used. It also includes a literature review, research methodology with objectives and data sources, and a summary of key findings. The research derives implied cash flow growth rates from 184 European IPOs priced using discounted cash flow models. It finds the average IPO firm is expected to grow cash flows by 33% annually, though actual post-IPO growth rates are slightly positive. Forecast errors are associated with factors like market-to-book ratio and leverage, and negatively impact long-term stock returns.
An Empirical Assessment of Capital Asset Pricing Model with Reference to Nati...ijtsrd
"This study concentrates on empirical assessment of Capital Asset Pricing Model CAPM on the National Stock Exchange NSE . CAPM assists to determine a well diversified portfolio. The main objective of this research paper is to check the applicability of Nobel laureate’s model in Indian equity market by testing the relationship between risk and return, whether there is any direct proportionality in the expected rate of return and its systematic risk. It relates its results by using the beta systematic risk as a measuring factor. The study was being conducted for a period of 260 weeks from 7 April 2013 to 25 March 2018. 45 companies from NSE were picked as a proxy for the market portfolio. This research was done by using regression analysis on stocks and portfolio to find out the final results. Research of this study nullifies that this model is applicable to the Indian market and also contradicts its expected return and systematic risk which are linearly related to each other. Miss. Yashashri Shinde | Miss. Teja Mane ""An Empirical Assessment of Capital Asset Pricing Model with Reference to National Stock Exchange"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Special Issue | Fostering Innovation, Integration and Inclusion Through Interdisciplinary Practices in Management , March 2019, URL: https://www.ijtsrd.com/papers/ijtsrd23105.pdf
Paper URL: https://www.ijtsrd.com/management/public-sector-management/23105/an-empirical-assessment-of-capital-asset-pricing-model-with-reference-to-national-stock-exchange/miss-yashashri-shinde"
IMPACT OF LEVERAGE ON FIRM’S INVESTMENT DECISION OF FOOD - BEVERAGE INDUSTRY.Nghiên Cứu Định Lượng
This document summarizes a study that examined the impact of leverage on the investment decisions of food and beverage companies listed on the Vietnam stock exchange between 2008-2014. The researchers used a GMM model to estimate the relationship between leverage and investment while controlling for factors like cash flow, sales growth, return on assets, and liquidity. The results indicated that leverage only had an immediate impact on investment decisions and affected them with a one period lag. Cash flow and sales growth were also found to impact investment decisions, but the other factors did not influence the investment decisions of food and beverage firms.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
The document analyzes the impact of internal factors on stock prices of companies listed on the Vietnam stock market from 2011-2015. Using panel data models including fixed effects, random effects and GMM, the analysis found that:
1) Return on equity, book value per share, dividend per share, and firm size had a positive impact on stock price.
2) Dividend yield had a negative impact on stock price.
3) Price earnings and debt to assets ratios did not have a statistically significant impact on stock price.
The results indicate that profitable and well-capitalized companies with higher dividends tend to have higher stock prices, while high dividend yields correspond to lower prices.
Cost of equity estimation for the Brazilian market: a test of the Goldman Sac...FGV Brazil
As an approach to determining the degree of integration of the Brazilian economy, this paper seeks to test the explanatory power of the Goldman Sachs Model for the expected returns by a foreign investor in the Brazilian market during the past eleven years (2004-2014). Using data for the stocks of 57 of the most actively traded firms at the BM&FBovespa, it begins by testing directly the degree of integration of the Brazilian economy during this period, in an attempt to better understand the context in which the model has been used. In sequence, in an indirect test of the Goldman Sachs model, the risk factor betas (market risk and country risk) of the sample stocks were estimated and a panel regression of expected stock returns on these betas was performed. It was found that country risk is not a statistically significant explanation of expected returns, indicating that it is being added in an ad hoc fashion by market practitioners to their cost of equity calculations. Thus, although there is evidence of a positive and significant relationship between systematic risk and return, the results for country risk demonstrate that the Goldman Sachs Model was not a satisfactory explanation of expected returns in the Brazilian market in the past eleven years, leading us to question the validity of its application in practice. By adding a size premium factor to the model, there is evidence of a negative and significant relationship between companies’ size and return, although country risk remains not satisfactory to explain stock expected returns.
Date: 2017-03
Authors:
Guanais, Luiz Felipe Poli
Sanvicente, Antonio Zoratto
Sheng, Hsia Hua
MODELING THE AUTOREGRESSIVE CAPITAL ASSET PRICING MODEL FOR TOP 10 SELECTED...IAEME Publication
Systematic risk is the uncertainty inherent to the entire market or entire market segment and Unsystematic risk is the type of uncertainty that comes with the company or industry we invest. It can be reduced through diversification. The study generalized for selecting of non -linear capital asset pricing model for top securities in BSE and made an attempt to identify the marketable and non-marketable risk of investors of top companies. The analysis was conducted at different stages. They are Vector auto regression of systematic and unsystematic risk.
This study examines the impact of investor sentiment on emerging stock market liquidity using panel data from 12 emerging markets from 2002-2015 and time series data from two aggregate emerging market indices. The study finds a positive relationship between domestic investor sentiment and stock market liquidity across emerging markets. Results also indicate that foreign investor sentiment, particularly from the U.S. and Europe, significantly influences liquidity in emerging stock markets. Three measures of liquidity - trading volume, Amihud's illiquidity ratio, and bid-ask spreads - are used to capture different aspects of liquidity.
Mutual fund performance an analysis of monthly returns of an emerging marketAlexander Decker
1) The document analyzes the monthly performance of over 15 growth-oriented mutual funds on the Dhaka Stock Exchange of Bangladesh compared to benchmark returns.
2) Risk-adjusted performance measures like the Jensen, Treynor, and Sharpe ratios were used to evaluate performance. Most funds performed better on the Jensen and Treynor measures but not as well on the Sharpe ratio.
3) The analysis found that very few funds were well-diversified and reduced unique risk. Growth funds did not outperform in terms of total risk and did not provide the benefits of diversification and professional management that investors seek. Therefore, mutual funds cannot always outperform the market through their expertise.
This study examines how stock returns in the banking and textile industries in Pakistan vary with economic factors using a multifactor model. The results show that while market returns are the main driver of stock price changes, other macroeconomic and industry variables provide additional explanation of returns. Economic exposure is higher at the industry level than the firm level. Stock returns also respond differently to economic conditions depending on the individual firm.
An econometric analysis of bombay stock exchangeAlexander Decker
This document summarizes research on analyzing returns and volatility of the Bombay Stock Exchange. It examines the presence of day-of-the-week effects and analyzes annual returns. A number of statistical tests are used to test for differences in mean returns and volatility across days of the week. The results do not support the presence of day-of-the-week effects but do find insignificant daily return volatility. The document also reviews several other studies on stock market returns, volatility, and efficiency in other markets globally and in Africa.
This document summarizes a research study that examined the effect of earnings growth on market reaction to dividend change announcements of public firms in Indonesia from 2009-2013. The study found that earnings growth did not moderate the relationship between dividend change announcements and market reaction. This indicates that earnings growth was not informative enough to impact the relationship. This may be because operating cash flow information is more important than earnings growth, and some companies were found to engage in income smoothing, which reduced the value of reported earnings growth. The study used multiple linear regression to analyze the data of 58 companies. In conclusion, earnings growth did not strengthen the influence of dividend changes on stock returns in this sample of Indonesian public companies.
Testing and extending the capital asset pricing modelGabriel Koh
This paper attempts to prove whether the conventional Capital Asset Pricing Model (CAPM) holds with respect to a set of asset returns. Starting with the Fama-Macbeth cross-sectional regression, we prove through the significance of pricing errors that the CAPM does not hold. Hence, we expand the original CAPM by including risk factors and factor-mimicking portfolios built on firm-specific characteristics and test for their significance in the model. Ultimately, by adding significant factors, we find that the model helps to better explain asset returns, but does still not entirely capture pricing errors.
This document summarizes a study that assesses competition in the Indian banking sector. The study uses the Panzar-Rosse H-statistic method to analyze competition using panel data from 36 banks over the period 1994 to 2009. The key findings are:
1) The H-statistic has increased since 1994, indicating an improvement in the degree of competition in the Indian banking sector.
2) Equity capital, as a control variable, influences the level of competition.
3) Analyzing competition allows policymakers to design liberalization measures, financial products, and business models to further enhance competition in banking.
Short term persistence in mutual fund performance(12)bfmresearch
This study examines the short-term persistence of mutual fund performance using daily returns data over quarterly periods. The researchers estimate stock selection and market timing models for mutual funds and rank funds into deciles based on their estimated abnormal returns each quarter. They then measure the average abnormal return of each decile in the following quarter. They find that the top-performing decile in a given quarter generates a statistically significant average abnormal return of 25-39 basis points in the subsequent quarter, providing evidence of short-term persistence in performance. However, this persistence disappears when funds are evaluated over longer periods using a concatenated time series approach.
A garch approach to measuring efficiency, a case study of nairobi securities ...Alexander Decker
This document discusses research analyzing the efficiency of the Nairobi Securities Exchange using a GARCH model. Previous studies of the exchange's efficiency using ordinary least squares regression methods yielded inconclusive results. The research first uses non-parametric methods to show that daily stock returns are non-random and dependent on previous returns. It then employs a GARCH(3,1) model, finding that the current return is determined by the mean return plus an error term that varies based on returns from the previous 3 days. This dependence on past returns signifies weak-form market inefficiency according to the research. Information and communication technologies are increasing access to information in Kenya's market but the study finds evidence it has not yet achieved weak-form efficiency
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Does the capital assets pricing model (capm) predicts stock market returns in...Alexander Decker
This document examines whether the Capital Asset Pricing Model (CAPM) can predict stock returns in Ghana using data from selected stocks on the Ghana Stock Exchange from 2006-2010. The results found no statistically significant relationship between actual and predicted returns, indicating CAPM with constant beta cannot explain differences in returns. It was also found that some stocks were on average undervalued while one was overvalued over the period studied. The conclusion is that the standard CAPM model cannot statistically explain the observed differences in actual and estimated returns of the selected Ghanaian stocks.
Factors affecting stock market prices in amman stock exchangeAlexander Decker
This document summarizes a study that examined factors affecting stock market prices on the Amman Stock Exchange. The study used surveys to collect data on how internal factors like dividend policy, firm size, management quality, and financial situation impact stock prices. It found that inflation had the most impact on prices, while the nature of the firm's business had the least. The study recommended that companies get more involved in drafting laws and regulations to strengthen their role in the stock market.
This document summarizes a study examining the "day of the week effect" on stock returns in the Pakistani stock market between 2006-2010. The study finds evidence of a "Tuesday effect", with average returns on Tuesdays found to be significantly higher than other days of the week. Descriptive statistics show the mean Tuesday return was 164.88 compared to 100.25 on other days. Regression analysis also indicates returns were significantly higher on Tuesdays, violating the assumption of efficient market hypothesis that returns should be constant across all days. Therefore, the study concludes there is a day of the week effect in the Pakistani stock market with abnormal returns observed on Tuesdays.
This document provides an overview of a research project on IPO pricing and growth rates implied in offer prices. It contains an introduction that discusses challenges in valuing IPO firms and approaches used. It also includes a literature review, research methodology with objectives and data sources, and a summary of key findings. The research derives implied cash flow growth rates from 184 European IPOs priced using discounted cash flow models. It finds the average IPO firm is expected to grow cash flows by 33% annually, though actual post-IPO growth rates are slightly positive. Forecast errors are associated with factors like market-to-book ratio and leverage, and negatively impact long-term stock returns.
An Empirical Assessment of Capital Asset Pricing Model with Reference to Nati...ijtsrd
"This study concentrates on empirical assessment of Capital Asset Pricing Model CAPM on the National Stock Exchange NSE . CAPM assists to determine a well diversified portfolio. The main objective of this research paper is to check the applicability of Nobel laureate’s model in Indian equity market by testing the relationship between risk and return, whether there is any direct proportionality in the expected rate of return and its systematic risk. It relates its results by using the beta systematic risk as a measuring factor. The study was being conducted for a period of 260 weeks from 7 April 2013 to 25 March 2018. 45 companies from NSE were picked as a proxy for the market portfolio. This research was done by using regression analysis on stocks and portfolio to find out the final results. Research of this study nullifies that this model is applicable to the Indian market and also contradicts its expected return and systematic risk which are linearly related to each other. Miss. Yashashri Shinde | Miss. Teja Mane ""An Empirical Assessment of Capital Asset Pricing Model with Reference to National Stock Exchange"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Special Issue | Fostering Innovation, Integration and Inclusion Through Interdisciplinary Practices in Management , March 2019, URL: https://www.ijtsrd.com/papers/ijtsrd23105.pdf
Paper URL: https://www.ijtsrd.com/management/public-sector-management/23105/an-empirical-assessment-of-capital-asset-pricing-model-with-reference-to-national-stock-exchange/miss-yashashri-shinde"
IMPACT OF LEVERAGE ON FIRM’S INVESTMENT DECISION OF FOOD - BEVERAGE INDUSTRY.Nghiên Cứu Định Lượng
This document summarizes a study that examined the impact of leverage on the investment decisions of food and beverage companies listed on the Vietnam stock exchange between 2008-2014. The researchers used a GMM model to estimate the relationship between leverage and investment while controlling for factors like cash flow, sales growth, return on assets, and liquidity. The results indicated that leverage only had an immediate impact on investment decisions and affected them with a one period lag. Cash flow and sales growth were also found to impact investment decisions, but the other factors did not influence the investment decisions of food and beverage firms.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
The document analyzes the impact of internal factors on stock prices of companies listed on the Vietnam stock market from 2011-2015. Using panel data models including fixed effects, random effects and GMM, the analysis found that:
1) Return on equity, book value per share, dividend per share, and firm size had a positive impact on stock price.
2) Dividend yield had a negative impact on stock price.
3) Price earnings and debt to assets ratios did not have a statistically significant impact on stock price.
The results indicate that profitable and well-capitalized companies with higher dividends tend to have higher stock prices, while high dividend yields correspond to lower prices.
Cost of equity estimation for the Brazilian market: a test of the Goldman Sac...FGV Brazil
As an approach to determining the degree of integration of the Brazilian economy, this paper seeks to test the explanatory power of the Goldman Sachs Model for the expected returns by a foreign investor in the Brazilian market during the past eleven years (2004-2014). Using data for the stocks of 57 of the most actively traded firms at the BM&FBovespa, it begins by testing directly the degree of integration of the Brazilian economy during this period, in an attempt to better understand the context in which the model has been used. In sequence, in an indirect test of the Goldman Sachs model, the risk factor betas (market risk and country risk) of the sample stocks were estimated and a panel regression of expected stock returns on these betas was performed. It was found that country risk is not a statistically significant explanation of expected returns, indicating that it is being added in an ad hoc fashion by market practitioners to their cost of equity calculations. Thus, although there is evidence of a positive and significant relationship between systematic risk and return, the results for country risk demonstrate that the Goldman Sachs Model was not a satisfactory explanation of expected returns in the Brazilian market in the past eleven years, leading us to question the validity of its application in practice. By adding a size premium factor to the model, there is evidence of a negative and significant relationship between companies’ size and return, although country risk remains not satisfactory to explain stock expected returns.
Date: 2017-03
Authors:
Guanais, Luiz Felipe Poli
Sanvicente, Antonio Zoratto
Sheng, Hsia Hua
MODELING THE AUTOREGRESSIVE CAPITAL ASSET PRICING MODEL FOR TOP 10 SELECTED...IAEME Publication
Systematic risk is the uncertainty inherent to the entire market or entire market segment and Unsystematic risk is the type of uncertainty that comes with the company or industry we invest. It can be reduced through diversification. The study generalized for selecting of non -linear capital asset pricing model for top securities in BSE and made an attempt to identify the marketable and non-marketable risk of investors of top companies. The analysis was conducted at different stages. They are Vector auto regression of systematic and unsystematic risk.
This study examines the impact of investor sentiment on emerging stock market liquidity using panel data from 12 emerging markets from 2002-2015 and time series data from two aggregate emerging market indices. The study finds a positive relationship between domestic investor sentiment and stock market liquidity across emerging markets. Results also indicate that foreign investor sentiment, particularly from the U.S. and Europe, significantly influences liquidity in emerging stock markets. Three measures of liquidity - trading volume, Amihud's illiquidity ratio, and bid-ask spreads - are used to capture different aspects of liquidity.
Mutual fund performance an analysis of monthly returns of an emerging marketAlexander Decker
1) The document analyzes the monthly performance of over 15 growth-oriented mutual funds on the Dhaka Stock Exchange of Bangladesh compared to benchmark returns.
2) Risk-adjusted performance measures like the Jensen, Treynor, and Sharpe ratios were used to evaluate performance. Most funds performed better on the Jensen and Treynor measures but not as well on the Sharpe ratio.
3) The analysis found that very few funds were well-diversified and reduced unique risk. Growth funds did not outperform in terms of total risk and did not provide the benefits of diversification and professional management that investors seek. Therefore, mutual funds cannot always outperform the market through their expertise.
This study examines how stock returns in the banking and textile industries in Pakistan vary with economic factors using a multifactor model. The results show that while market returns are the main driver of stock price changes, other macroeconomic and industry variables provide additional explanation of returns. Economic exposure is higher at the industry level than the firm level. Stock returns also respond differently to economic conditions depending on the individual firm.
An econometric analysis of bombay stock exchangeAlexander Decker
This document summarizes research on analyzing returns and volatility of the Bombay Stock Exchange. It examines the presence of day-of-the-week effects and analyzes annual returns. A number of statistical tests are used to test for differences in mean returns and volatility across days of the week. The results do not support the presence of day-of-the-week effects but do find insignificant daily return volatility. The document also reviews several other studies on stock market returns, volatility, and efficiency in other markets globally and in Africa.
This document summarizes a research study that examined the effect of earnings growth on market reaction to dividend change announcements of public firms in Indonesia from 2009-2013. The study found that earnings growth did not moderate the relationship between dividend change announcements and market reaction. This indicates that earnings growth was not informative enough to impact the relationship. This may be because operating cash flow information is more important than earnings growth, and some companies were found to engage in income smoothing, which reduced the value of reported earnings growth. The study used multiple linear regression to analyze the data of 58 companies. In conclusion, earnings growth did not strengthen the influence of dividend changes on stock returns in this sample of Indonesian public companies.
Testing and extending the capital asset pricing modelGabriel Koh
This paper attempts to prove whether the conventional Capital Asset Pricing Model (CAPM) holds with respect to a set of asset returns. Starting with the Fama-Macbeth cross-sectional regression, we prove through the significance of pricing errors that the CAPM does not hold. Hence, we expand the original CAPM by including risk factors and factor-mimicking portfolios built on firm-specific characteristics and test for their significance in the model. Ultimately, by adding significant factors, we find that the model helps to better explain asset returns, but does still not entirely capture pricing errors.
This document summarizes a study that assesses competition in the Indian banking sector. The study uses the Panzar-Rosse H-statistic method to analyze competition using panel data from 36 banks over the period 1994 to 2009. The key findings are:
1) The H-statistic has increased since 1994, indicating an improvement in the degree of competition in the Indian banking sector.
2) Equity capital, as a control variable, influences the level of competition.
3) Analyzing competition allows policymakers to design liberalization measures, financial products, and business models to further enhance competition in banking.
Short term persistence in mutual fund performance(12)bfmresearch
This study examines the short-term persistence of mutual fund performance using daily returns data over quarterly periods. The researchers estimate stock selection and market timing models for mutual funds and rank funds into deciles based on their estimated abnormal returns each quarter. They then measure the average abnormal return of each decile in the following quarter. They find that the top-performing decile in a given quarter generates a statistically significant average abnormal return of 25-39 basis points in the subsequent quarter, providing evidence of short-term persistence in performance. However, this persistence disappears when funds are evaluated over longer periods using a concatenated time series approach.
A garch approach to measuring efficiency, a case study of nairobi securities ...Alexander Decker
This document discusses research analyzing the efficiency of the Nairobi Securities Exchange using a GARCH model. Previous studies of the exchange's efficiency using ordinary least squares regression methods yielded inconclusive results. The research first uses non-parametric methods to show that daily stock returns are non-random and dependent on previous returns. It then employs a GARCH(3,1) model, finding that the current return is determined by the mean return plus an error term that varies based on returns from the previous 3 days. This dependence on past returns signifies weak-form market inefficiency according to the research. Information and communication technologies are increasing access to information in Kenya's market but the study finds evidence it has not yet achieved weak-form efficiency
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Does the capital assets pricing model (capm) predicts stock market returns in...Alexander Decker
This document examines whether the Capital Asset Pricing Model (CAPM) can predict stock returns in Ghana using data from selected stocks on the Ghana Stock Exchange from 2006-2010. The results found no statistically significant relationship between actual and predicted returns, indicating CAPM with constant beta cannot explain differences in returns. It was also found that some stocks were on average undervalued while one was overvalued over the period studied. The conclusion is that the standard CAPM model cannot statistically explain the observed differences in actual and estimated returns of the selected Ghanaian stocks.
Effect of Leverage on Expected Stock Returns and Size of the FirmAakash Kumar
This document presents a study on the effect of leverage on expected stock returns and firm size for companies listed on the KSE100 index in Pakistan. It reviews previous literature that has found mixed results on the relationship between leverage and various performance measures. The study uses linear regression to analyze the impact of leverage on earnings-to-price ratio as a proxy for expected stock returns and market value as a proxy for firm size. Preliminary results are presented along with conclusions and recommendations for further study.
Capital asset pricing model (capm) evidence from nigeriaAlexander Decker
This document summarizes a research study that tested the predictions of the Capital Asset Pricing Model (CAPM) using stock return data from the Nigerian stock exchange from 2007 to 2010. The study combined individual stocks into portfolios to enhance the precision of estimates. The results did not support CAPM's predictions that higher risk (higher beta) is associated with higher returns. The study also found that the slope of the Security Market Line did not equal the excess market return, further invalidating CAPM predictions for the Nigerian market. The document provides context on CAPM theory and reviews prior empirical studies that have also found poor support for CAPM predictions.
Establishing the effectiveness of market ratios in predicting financial distr...oircjournals
This document is a research paper from the International Journal of Finance, Accounting and Economics that examines the effectiveness of market ratios in predicting financial distress among listed firms in Kenya. It provides background on financial distress research and discusses liability management theory and shiftability theory of liquidity as relevant frameworks. The paper aims to determine which market ratios are most statistically effective in predicting financial distress using data from 2011-2015 on the 62 listed companies in the Nairobi Securities Exchange.
This document is a research paper from the International Journal of Finance, Accounting and Economics that examines the effectiveness of market ratios in predicting financial distress among listed firms in Kenya. The paper includes an abstract, introduction, literature review, and statement of the problem sections. The introduction provides background on financial distress research and defines financial distress. The literature review covers liability management theory and shiftability theory of liquidity. The statement of the problem discusses previous related studies and notes that no significant studies have examined which market ratios are most effective at predicting financial distress in Kenyan listed companies.
Determinants of the implied equity risk premium in BrazilFGV Brazil
This document summarizes a research paper that proposes and tests determinants of the implied equity risk premium (ERP) in Brazil. The paper calculates the ERP using current stock prices rather than historical returns. It finds several market fundamentals are significantly related to changes in the ERP, including changes in interest rates, debt risk spreads, US market liquidity, and the S&P 500 index level. The paper also compares using implied ERP versus historical averages and finds implied ERP varies with market events while historical averages do not.
The objective of this paper is to test the efficiency in the foreign exchange market by using four exchange rates ($/€, $/£, C$/$, and ¥/$). Different theoretical models are applied, like the random walk hypothesis, the unbiased forward rate hypothesis, the composite efficiency hypothesis, the semi-strong market efficiency, and the exchange rate expectations based on anticipated and unanticipated events (“News”). If exchange rate efficiency does not hold, a risk premium must exist and can be measured. Also, the determination of this exchange risk premium is taking place by using a GARCH (p, q) model. The empirical results for these four major exchange rates (five currencies) show that relative efficiency exists, but there are significant risk premia for some exchange rates used, here.
Market Theory, Capital Asset Pricing ModelKatie Gulley
Investment banks play an important role in capital markets by providing services to corporations and facilitating investment. They assist companies in raising capital through public offerings on stock exchanges or private placements. This process involves underwriting, wherein the investment bank takes on the risk of distributing securities if they cannot be sold. Investment banks also provide mergers and acquisitions advisory services to corporations. Their deep expertise in valuation and financing allows investment banks to effectively advise clients on major transactions.
International Journal of Business and Management Invention (IJBMI)inventionjournals
This document summarizes a study that examined the determinants of credit risk in the Tunisian banking sector from 2003-2011. The study found that:
1) Performance, audit opinion, and audit quality were significant determinants of credit risk levels in banks, with higher performance, unqualified audit opinions, and audits by large accounting firms associated with lower credit risk.
2) Information quality, as proxied by discretionary accruals, was not found to be related to credit risk levels.
3) The study tested these relationships using an ordinary least squares regression model with credit risk as the dependent variable and information quality, performance, size, listing status, audit opinion, and audit quality as independent variables
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
International Journal of Business and Management Invention (IJBMI)inventionjournals
The document summarizes a study that examined the determinants of credit risk in the Tunisian banking sector from 2003-2011. The study found that performance, audit opinion, and audit quality were significant determinants of credit risk levels, with higher performance, unqualified audit opinions, and audits by big four firms associated with lower credit risk. However, information quality measured by discretionary accruals was not found to be related to credit risk. The study used regression analysis to test the relationship between credit risk and various independent variables like information quality, performance, size, listing status, audit opinion, and audit quality.
1.[1 12]stock prices and microeconomic variablesAlexander Decker
This research examines the long-run relationship and causal direction between stock prices on the Dhaka Stock Exchange and four microeconomic variables: market dividend yield, market price-earnings multiples, monthly average market capitalization, and monthly average trading volume. Using monthly data from 2000 to 2010, the study finds a long-run equilibrium among the variables. However, stock prices do not Granger cause dividend yields. Stock prices have a bi-directional causal relationship with price-earnings multiples and trading volume, and a uni-directional causal relationship from stock prices to market capitalization.
Impact analysis of interest rate on the net assets of multinational businesse...Alexander Decker
This document summarizes a research study that examined the impact of interest rates on the net assets of multinational businesses in Nigeria from 1995 to 2010. A regression model was used to analyze the relationship between net asset value index and interest rates based on financial data from 7 randomly sampled multinational companies. The regression analysis showed that increases in interest rates resulted in reductions in net assets. Therefore, interest rates provide important information for multinational companies about profitability and maintaining the right debt-equity mix to remain competitive.
Tangible market information and stock returns the nepalese evidence synopsisSudarshan Kadariya
This is a synopsis of the work done for the academic fulfillment purpose. The study have assumptions. The findings are suggested to related with its assumptions. I believe this work will help the financial / stock market in Nepal and it will also be accessible and share some features to the international financial market researchers.
This document analyzes structural changes in the Brazilian industry from 1982-1997, a period of economic and institutional uncertainty. It explores how macroeconomic changes interacted with firm behaviors and industrial structure at the micro level. The analysis focuses on how firms adapted strategies in areas like sales, finance, production and investment to develop flexibility in responding to uncertainty. While uncertainties decreased after 1994, the analysis suggests firms developed in different ways and uncertainty still influences industry composition.
Is the market swayed by press releases on corporate governance? Event study o...Valentina Lagasio
Are press releases on Corporate Governance price sensitive? What is the impact of Corporate Governance information on stock prices of banks? This paper addresses these questions by applying an event study methodology on 70 press releases published by the Euro area banks listed on the Eurostoxx banks Index, from 2007 to 2016. Systemic shocks are explored as well idiosyncratic ones. Our results show that investment decisions are significantly but negatively influenced by the disclosure of a press release on corporate governance as if this kind of news leads investors to perceive the banks' prospects negatively. The best of our knowledge this is the first paper that investigates European banks press releases on corporate governance. Findings are relevant for banks' management and their disclosure policy. Nonetheless, further research is needed to investigate differences and similarities between an area of governance disclosure and another.
1. The document discusses the nature of uncertainties facing firms in strategic decision making, including Knightian uncertainty about unknown probabilities versus risk with known probabilities.
2. It describes frameworks for conceptualizing uncertainty, such as Courtney's four levels ranging from a clear future to true ambiguity. Traditional strategic approaches are less effective under higher uncertainty levels.
3. Firms can cope with uncertainty by developing a strategic intent, using an opportunities approach, employing a portfolio of actions like big bets and options, creating simple rules, or following a semicoherent strategic direction with continuous change.
Forecasting Stocks with Multivariate Time Series Models.inventionjournals
This work seeks to forecast stocks of the Nigerian banking sector using probability multivariate time series models. The study involved the stocks from six different banks that were found to be analytically interrelated. Stationarity of the six series were obtained by differencing. Model selection criteria were employed and the best fitted model was selected to be a vector autoregressive model of order 1. The model was subjected to diagnostic checks and was found to be adequate. Consequently, forecasts of stocks were generated for the next two years.
07. the determinants of capital structurenguyenviet30
This document summarizes a research paper that investigates how firms in capital market-oriented economies (UK, US) and bank-oriented economies (France, Germany, Japan) determine their capital structures. Using panel data and regression analysis, the paper finds that firm size and tangibility of assets increase leverage, while profitability, growth opportunities, and share price performance decrease leverage in both types of economies. However, the impacts of some determinants vary between countries depending on differences in institutions and traditions. The paper also finds that firms have target leverage ratios but adjust to them at different speeds across countries.
Similar to Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm & Fbovespa (20)
Many countries have seen the importance of financial education by making financial
education a national strategy. In Vietnam, although the National Strategies for Inclusive Financial
Education has been proposed since 2017 and officially included in the National Financial Inclusion
Strategy in 2020, however, financial education is still quite new, and many people are not aware of
the necessity of financial l
Today, in the rapidly emerging globalization process, increasing the competitiveness of enterprises
depends on increasing of their firm performance. Although there are many methods and techniques affecting
firm performance, Information technology (IT) capabilities has become one of the most widely used method,
especially in dealing with supply chain matters of a firm. The aim of our study is to express whether innovation
and organization learning is effective as intermediate variable to the effects of IT capabilities at firm’s
performance. The opinion which claim
Globally, the number of startup companies has rapidly expanded during the last 5-8 years. Offering
products and/or services that greatly enhance the lives of its clients is a major focus for these firms. In India,
local and federal government initiatives have provided new enterprises and entrepreneurs with much
momentum and assistance, helping India become the world's top startup location. The Government of India
(GOI) launched the "Startup India" campaign in 2015 to promote entrepreneurship and support businesses to
achieve this goal (Babu, S., Sridevi, K.,2019). An IBM Center for Business Value and Oxford Economics study
in 2018 found that 90% of Indian companies fail within the first five years of operation. Potential difficulties
that startups may run across, both generally and specifically in the Indian market, have been described by
several authors.
Behaviour finance is the study of how psychological phenomena affect financial behaviour. This
financial science is used in making financial decisions. Amid the development of the digital economy, paylater
innovation has emerged. It is feared that the ease of use of paylater can have a negative impact, one of which is
the attitude of impulsive buying. This research will analyze the effect of financial literacy, self-control, risk
perception, and percieved ease of use on impulsive buying behaviour. This research is based on Decision Affect
Theory, which is a theory that discusses financial decision behaviour that is influenced by self-emotion. This
research is uses purposive sampling wi
Improving the business environment is one of the key strategies to promote local and regional
economic development. However, which factors affect the business environment of the provinces is still
controversial. Using survey data from 400 investors and managers and a multivariate regression analysis
method, this study has identified the factors affecting the business environment of Hai Phong province. The
analysis results show that there are 09 factors affecting the business environment of Hai Phong City, including
entry costs, land access and tenure, transparent, informal charges, time cost, pro-activeness, business support
services, labor training and legal institutions. In
The effect of work attitude and innovation ability on employee innovation performance is of great
significance for improving the innovation ability of manufacturing enterprises and building an "Innovative
Country" in China.This article theoretical analysis was conducted on the mechanism by which the work attitude
of employees in manufacturing enterprises affects innovation performance and the mediating mechanism of
innovation ability. Based on data from Chinese manufacturing enterprises, empirical analysis was conducted
using SEM models. Resear
The concept of organizational resilience continues to grow in focus and importance, but there
has yet to be an agreed upon measure of organizational resilience. Organizational resilience can be seen as a
corporation’s ability to adapt to change and maintain flexibility within their supply chain. Resilience and
flexibility at all organizational levels is necessary, in a proactive manner, to turn resilience into a competitive
advantage
The document summarizes research on nonlinear correlation coefficients on manifolds. It defines a new nonlinear correlation coefficient called SEVP, proves some of its basic properties including that it ranges from 0 to 1. It discusses how to measure nonlinear correlation between variables on a manifold and reviews common dimensionality reduction methods for manifolds. The goal is to preserve nonlinear structure as much as possible by projecting onto the orthogonal complement of tangent spaces. An optimization problem is formulated to find the linear space with the largest angle to all tangent spaces, transforming it into an eigenvalue problem to solve.
This study aims to analyze and prove whether there is a positive and significant influence
between product quality and poki prices on purchasing decisions for Kobba brand coffee. The survey was
conducted using 53 respondents who were buyers who had purchased Kobba brand coffee more than once.
Information from respondents was obtained through a list of questions that were sent and returned by
respondents
In this paper, we introduce a universal framework for mean-distortion robust risk measurement and
portfolio optimization. We take accounts for the uncertainty based on Gelbrich distance and another uncertainty
set proposed by Delage & Ye. We also establish the model under the constraints of probabilistic safety
criteria and compare the different frontiers and the investment ratio to each asset. The empirical analysis in the
final part explores the impact of different parameters on the model results.
Despite the attainment of the famous Millennium Development Goals (MDGs) of reducing the number
of poor people across the globe a significant number still live below the poverty line. The problem of poverty is
more endemic in developing countries like Nigeria. Several intervention efforts have been in place to address
the poverty question which persists partly due to serious financial exclusion and unethical activities of informal
finance providers.
The focus of this research was to establish the effect of entrepreneurship Ecosystem in inculcating
entrepreneurial propensity for community development. Promotion of entrepreneurship in Kenya has existed
ever since independence. The Government has shown tremendous support to entrepreneurship growth. The
Government have channelled financial support through funding such as Women Enterprise fund, Youth
Enterprise Fund and Uwezo Fund
In this paper, we consider an AAI with two types of insurance business with p-thinning dependent
claims risk, diversify claims risk by purchasing proportional reinsurance, and invest in a stock with Heston
model price process, a risk-free bond, and a credit bond in the financial market with the objective of maximizing
the expectation of the terminal wealth index effect, and construct the wealth process of AAI as well as the the
model of robust optimal reinsurance-investment problem is obtained, using dynamic programming, the HJB
equation to obtain the pre-default and post-default reinsurance-investment strategies and the display expression
of the value function, respectively, and the sensitivity of the model parameters is analyzed through numerical
experiments to obtain a realistic economic interpretation. The model as well as the results in this paper are a
generalization and extension of the results of existing studies.
:Textiles and clothing are a fundamental part of everyday life and an important sector in the global
economy. It is hard to imagine a world without textiles. Clothes are worn by almost everyone, almost all the time
and it also becomes an important expression for an individuality. In 2015, emission from textiles production
totaled 1.2 billion tons of CO2 equivalent throughout its lifecycle. The fashion industry is a large consumer of
water, high volumes of water containing
In this paper, we construct a Credit Default Swap pricing model for default recovery rates under
distributional uncertainty based on a structured pricing model and distributional uncertainty theory. The model
is algorithmically transformed into a solvable semi-definite programming problem using the Lagrangian dual
method, and the solution of the model is given using the projection interior point method. Finally, an empirical
analysis is conducted, and the results show that the model constructed in this paper is reasonable and efficient
The closures of schools, colleges, and universities in many countries worldwide during the COVID19 pandemic have reshaped every aspect of our normal lives and educational experience. As a result of
extended periods of lockdown, whole populations have been advised to stay in their households and
communicate with others through distance electronic communications methods such as Zoom, Teams, Google
meetings etc. More than 1
Even though economists and academics have been studying money laundering for many years, there
are still gaps in the research because there is a dearth of trustworthy data on the activity as well as an absence
of specific sources and methods of collection in government-based reporting. The Walker-Unger gravity model
was used in this study to determine the countries that Russian-based money launderers used as funding
destinations between the years 2000 and 2020, as well as whether there are any variations in country rankings
during economic downturns. The investigation's findings indicated that even during recessionary times, money
launderers with Russian bases consistently preferred certain countries as their destination
This study will establish a scientific foundation for analyzing and assessing the development of
human resources in industrial parks of Hai Duong province. According to statistics and primary data, the
study analyzes the current situation of human resource development in the industrial parks in Hai Duong
province, states achievements, limitations and their causes, thereby giving solutions to improve the human
resource development in industrial parks of Hai Duong province in the future for the economic development
of industrial parks in particular and Hai Duong province in general.
The document analyzes the efficiency of the top 20 solar companies globally from 2018-2022 using data envelopment analysis (DEA) and Malmquist productivity index (MPI). Input variables included total assets, total equity, and sales expenses, while output variables were revenue and profit. Correlation analysis found the input and output variables were strongly positively correlated and suitable for DEA. DEA and MPI analysis identified China Three Renewable Group, Enphase Energy, Trina Solar, Emerson Electrics, and Solar Industry India as the top 5 most efficient companies. The study aims to help managers evaluate partnering opportunities within the global solar supply chain.
The objective of this research is 1) to study social media usage behavior of the elderly and 2) to
examine the relationship between factors of the social media usage behavior of the elderly in Surat Thani
Province, Thailand. The data were collected from selected elderly aged 60 years and older in Surat Thani
Province. The number of the sample in this study was 400. The questionnaire was used as a tool to collect the
data. Statistics used were frequency, percentage, mean, standard deviation, and Chi-Square
More from International Journal of Business Marketing and Management (IJBMM) (20)
Integrating Advocacy and Legal Tactics to Tackle Online Consumer Complaintsseoglobal20
Our company bridges the gap between registered users and experienced advocates, offering a user-friendly online platform for seamless interaction. This platform empowers users to voice their grievances, particularly regarding online consumer issues. We streamline support by utilizing our team of expert advocates to provide consultancy services and initiate appropriate legal actions.
Our Online Consumer Legal Forum offers comprehensive guidance to individuals and businesses facing consumer complaints. With a dedicated team, round-the-clock support, and efficient complaint management, we are the preferred solution for addressing consumer grievances.
Our intuitive online interface allows individuals to register complaints, seek legal advice, and pursue justice conveniently. Users can submit complaints via mobile devices and send legal notices to companies directly through our portal.
Corporate Governance : Scope and Legal Frameworkdevaki57
CORPORATE GOVERNANCE
MEANING
Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions. It is, in essence, a toolkit that enables management and the board to deal more effectively with the challenges of running a company.
The presentation deals with the concept of Right to Default Bail laid down under Section 167 of the Code of Criminal Procedure 1973 and Section 187 of Bharatiya Nagarik Suraksha Sanhita 2023.
From Promise to Practice. Implementing AI in Legal Environments
Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm & Fbovespa
1. International Journal of Business Marketing and Management (IJBMM)
Volume 5 Issue 5 May 2020, P.P. 12-25
ISSN: 2456-4559
www.ijbmm.com
International Journal of Business Marketing and Management (IJBMM) Page 12
Relationship Between Systematic and Idiosincratic Risk with the
Expected Returns of Mila and Bm & Fbovespa
Belky Esperanza Gutierrez Castañeda1
, Carlos Andrés Barrera Montoya2
,
Daniela Perez Noreña3
1
Universidad de Antioquia- Docente vinculado, dirección: calle 67 # 53 – 108 oficina 13-107, teléfono:
2198803
2
Universidad de Antioquia- Docente catedra; dirección: carrera 70 # 119-09; teléfono: +57 3116131097
3
Universidad de Antioquia- Docente catedra; dirección: calle 66ª # 55-51; teléfono: +57 3127456046
SUMMARY: Returns on financial assets in the stock markets are affected daily by different types of risk, both
internal (systematic) and external (idiosyncratic), to anticipate the possible risks, investors look for tools that
allow them to know the behavior of the market and at the same time identify the risks in which they are
immersed in order to maintain a profitability in the portfolios of investment; therefore, the present study
evaluated the relationship between the idiosyncratic risk, systematic risk and other factors in relation to the
expected returns of the companies belonging to MILA and BM&FBovespa in the period 2009-2016 with the
aim of identifying which of the existing models in economic theory better forecasts the expected behavior of
returns.The risk analysis and profitability in both markets was based on the statistical and financial models that
best forecast this relationship, in the case of idiosyncratic risk was calculated by the Three Factors Fama and
French model, EGARCH model and stochastic volatilities; For the calculation of idiosyncratic risk and
systematic risk, the beta calculated by the CAPM and Beta model of the Economática software was taken. The
results of the investigation show a positive and significant relationship between the expected returns and the
idiosyncratic and systematic risk for both markets. In addition, it was identified that for such returns it is
important to take into account other variables such as the size of the company, book to market and variable
momemtum that are significant in predicting the expected returns of the investment portfolios of the MILA and
BM&FBovespa markets.
Keywords: idiosyncratic risk, systematic risk, stochastic volatility, expected returns,EGARCH.
I. INTRODUCTION
Currently, Latin American countries are looking for day-to-day integration of their markets, in order to
generate and increase resources for participating companies and seek portfolio versification for users (investors),
considering this new trend we must have in account that this opportunity for portfolio diversification, is related
to possible risks and the profitability that an investor incurs when participating in these markets, thus,
considering this new approach, we wanted to investigate the possible idiosyncratic risks that an investor may
have when not diversifying your wallet. Thus, market risk can be defined as the possible losses that may occur
in the financial assets that are part of the trading or investment portfolio, which are caused by market price
movements (Angel, 2000).
Similarly, the behavior of asset prices in financial markets worldwide has always brought the curiosity
of investors and academics, and has been a subject of constant research. The Capital Asset Pricing Model
(CAPM), developed by Sharpe (1964) and Lintner (1965), these authors with this theory pioneered describing
the relationship between risk and return on assets; which analyzed the return of an asset under systematic risk
and its foundation is in portfolio theory, predicts that all investors have their market portfolio in balance.
According to (Núñez & Cano, 2002), the distinction between systematic and non-systematic (idiosyncratic) risk
lies in the possibility that investors have in eliminating or avoiding the second risk component of their
investment portfolios through diversification. That is, when you invest in a portfolio, it is possible to achieve a
particular return with less risk, than to invest all the capital in a single asset. As a consequence of the latter, non-
systematic risk can be diversified, since it depends on idiosyncratic factors of the company, while systematic
risk cannot be eliminated through diversification, since it depends on the general market conditions and,
therefore, this It will be the only risk component that will be rewarded by the capital market.
Various studies by virtue of market diversification state that idiosyncratic risk is related to expected
returns both in the most consolidated securities markets, such as the US market, as well as in some emerging
markets. Merton (1987) and Malkiel and Xu (2004) developed asset valuation models, in the US market where
expected returns are positively related to idiosyncratic volatility, due to the lack of diversification across all
2. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 13
assets. The pricing of idiosyncratic volatility is due to investors demanding a premium for assuming
idiosyncratic risk in non-diversified portfolios. (Mustapha, 2013) also documents a positive relationship
between idiosyncratic volatility (systematic volatility) and asset returns, during the period 2000-2012 on the
Nigeria Stock Exchange. Nartea, Ward and Yao (2011), Reports a positive effect VI in four ASEAN markets
(Singapore, Malaysia, Thailand and Indonesia). Against these models there are empirical studies that show a
negative relationship between idiosyncratic volatility and future returns. For example, Ang, Hodrick-, Xing and
Zhang (2006, 2009) present compelling evidence that idiosyncratic volatility is priced negatively in the US
market. and through 23 developed international markets. Like Han & Lesmond (2011) who examine data from
45 world markets and show that there is no significant relationship between average returns and idiosyncratic
volatility.
Thus, the objective of this study is to investigate the behavior in relation to idiosyncratic risk in the
Latin American Integrated Market - MILA and BM & FBOVESPA, to analyze the relationship between the
expected return of an action and its idiosyncratic risk, which is the portion of specific risk to that particular
action. Therefore, in this study idiosyncratic volatilities and systematic volatilities conditional on the actions of
the sample are constructed, using the Fu (2009) methodology. For this (i) the residuals of the three-factor model
of Fama and French, (ii) it is estimated one month in advance idiosyncratic conditional volatilities using
EGARCH models. (iii) stochastic volatility and iv) regression models are constructed between the expected
returns of the companies and the expected idiosyncratic volatilities, which include other explanatory variables to
analyze the influence of these variables on returns and to verify whether their behavior the agrees with the
literature. Thus, each variable is selected according to its importance in financial theory. Among the control
variables used we have the beta; variable analyzed in the two studies by Fama & French (1992) and Fama &
French (1993) - the market value and the quotient between the book value (net equity) and the Market value in
addition to two variables - liquidity and impulse effect Additionally, this study is complemented with other
studies in Colombia, Peru, Chile and Mexico such as Pukthuanthong-Le & Visaltanachoti (2009) and Angelidis
(2010) that finds a relationship between idiosyncratic risk and expected return; in which the idiosyncratic risk
correlates positively with the expected return. Thus, to know what is the expected return behavior against
idiosyncratic risk in the MILA and BM & FBOVESPA market between 2009 and 2016 ?.
II. REVIEW OF LITERATURE
Considering that analysis of returns for an investment is related as a variable of different economic
theories that is used as a tool to predict expected returns of the companies, thus in the financial and economic
theory indicates that this variable helps to measure profit or loss generated by a financial asset in a given period,
which is dependent on different market conditions (Brown & B, 1980). Literature has classified the analysis or
verification of these theories by means of statistical or economic models. The first ones start from the hypothesis
that returns of financial assets follow a normal distribution. Ya Mackinlay (1997) economic models, are those
that analyze behavior of investors, using other additional tools and not only statistical assumptions; The author
indicates that all economic limitations in financial markets must be taken into account in order to calculate
abnormal returns with a lower margin of error. Likewise, Ugedo (2003) states that economic models are more
useful than statistical ones, since in addition to the corresponding statistical hypotheses, they startfrom some
assumptions about the behavior of investors and because it also includes economic variables. Thus, in this study
the economic models will be located in order to find or establish the relationship between stochastic volatilities
with idiosyncratic and systematic volatilities in the main specific Latin American markets inintegrated markets
that are currently in this region as Latin American Integrated Market - MILA and in Brazil Bolsa Balcão - B3
case.
A. Latin American Integrated Market - MILA
Considering study object of this research which is to find the relationship between stochastic volatility
and other factors with the expected returns of the companies belonging to MILA, we must start knowing the
global context of this market; thus, Latin American Integrated Market emerged in 2009 with the integration of
the stock exchanges of three countries; specifically, the Chilean stock markets with Santiago Stock Exchange
(BCS), Colombia with Colombian Stock Exchange (BVC) and Peru with Lima Stock Exchange (BVL) starting
operations on May 30, 2011, Finally, in June 2014, the process and integration of Mexico with Mexican Stock
Exchange (BMV) begins its operations on December 2, 2014. It is clear that this initiative was not aimed at
merger or integration of the three initially participating exchanges, but that it is a stock exchange integration at
regional level that would allow its users to carry out transactions in any of the three markets as if it were a local
transaction, for which it was sought to take advantage of technological resources to create a platform that allows
the free trade of shares through the markets of origin, it should be clarified that, in that market, only equity
securities whose main product to negotiate are negotiated are the actions. (Latin American Integrated Market)
3. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 14
Graph 1 Market Volume. Shares traded, total value (US $ at current prices)
Graph 2. National Companies that are publicly traded, total
The evolution of stock exchanges that are part of this integrated market in recent years, presented an
increase in the participation of issuers that give investors the opportunity to diversify their portfolio and possibly
reduce the risks (see Chart 2); thus, the number of companies listed in the MILA for year 2017 (638) makes this
market the largest stock market in Latin America, surpassing Brazil market represented by B3 with participation
of 335 companies (NYSE Euronext, 2018). As Uribe (2014) states, MILA has grown substantially in a very
short period of time, allowing countries that are part of this integration to compete efficiently with the largest
stock exchange in Latin America, as the case with the integrated B3 exchange. Likewise, this integration has led
to the increase in the value of the shares traded in the MILA and in each of the participating exchanges, leading
to this market being the second place in market volume (642 billion dollars) as Orozco (2016) affirms, This
growth is due to “… the range of execution for portfolios is increased by combining the number of issuers listed
in each market and transaction costs are reduced” (see Chart 1).
B. BRAZIL BALCÃO stock Exchange - B3
Analyzing the previous context, it can be indicated that in Latin America there are other alliances that
show an expansion in the financial and stock sector, it´s the case of São Paulo Stock Exchange (BM &
FBovespa) that in March of 2017, it was integrated with the Cetip, which gave its denomination firm on June
20, 2017 on behalf of the Commisão de ValoresMobiliários (CVM), thus becoming the largest and most
influential in Latin America remaining with the name of Brazil Bolsa Balcão - B3. (BM & FBovespa, 2017).
Therefore, it must be considered that the integration of Latin American markets becomes an opportunity to
diversify portfolios and can be a primary factor for its economic growth and for increase its competitiveness and
globalization, and also, relate it to the possible risks and profitability that an investor incurs when participating
in these markets. However, it should be considered that participation and possibilities of portfolio diversification
in recent years to present an increase in its investment participation leading to increase the trading volume of
these exchanges making Latin America a competitive market compared to other economies (see graph 3)
4. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 15
Graph 3 Market Volume. Shares traded, total value (US $ at current prices)
Fuente: Indicators Banco Mundial
This new trend is an opportunity for portfolio diversification and it is also intrinsically related to
possible risks and profitability that an investor incurs when participating in these markets, thus, considering that
this new integration trend is the one that predominated in large markets, this research sought to make a risk
analysis in relation to financial assets, since for the context of these markets there is a few literature that
indicates the trend and the application of economic theoretical references for the analysis of behavior of the
returns of the MILA and B3 markets in Latin America applying different methodologies that allow to evaluate
the behavior of these markets, it is worth clarifying that this study was carried out for Brazil´s case until the
period that integration had not yet been confirmed and its mnemonic name was BM & FBovespa
Finally, as indicated above, there is the opportunity for portfolio diversification, systematic and
idiosyncratic risk together with the expected return, it has always been used as a variable for decision-making
before an investment, as well as for the owners of companies, as for investors in general, this is why these risks
affect decisions related to portfolio management. Then, it has become necessary to develop, analyze and use
economic theories as a tool that can measure the facts or events in the stock market and facilitate and simplify
investigations of this type that provide tools to the investor.
III. RISK IN THE LATIN AMERICAN SHAREHOLDER MARKET
It is currently observed worldwide that the various stock markets are merging with the main objective
of being more competitive, attracting more foreign investment and generating greater versatility in an
increasingly globalized world. In particular, in Latin America two large shareholding structures can be
mentioned, which ,according to World Bank reports (2018) are those with the highest number of issuers and the
largest volume of trading in Latin America; Thus it could be indicated that these two markets have a high
participation of issuers, becoming a main focus of being studied. With this categorization given by the World
Bank, we can indicate that one of the main mergers in Latin America is the Latin American Integrated Market -
MILA currently made up of 4 countries (Chile, Colombia, Peru and Mexico) and also the most recent in 2017
the B3 that emerged from the merger between the BM & FBovespa and the Cetip in Brazil.
Considering this new integration trend that gives investors the opportunity to diversify their portfolio,
they are not oblivious possible risks that compromise the profitability that an investor may incur when
participating in these markets; this diversification being directly related to possible risks; which according to the
literature can be defined as the possible losses that may occur in the financial assets that are part of the trading
or investment portfolio, which are caused by movements in market prices (Fama & Macbeth, 1973) Thus,
defines the stock market risk, as the difference between the expected return and the return actually achieved by a
financial asset over time, this difference is subject to two causes or types of risks; the first known as systematic
risk, which is due to factors that affect the particular asset, but not the other assets; the second one due to the
factors that do affect all assets in general, as a consequence of the company's own and specific variability,
commonly known as non-systematic risk, not diversifying it, systemic risk or idiosyncratic risk.
Likewise, other authors define that the non-systematic or idiosyncratic risk is due to the company's own or
internal factors.; It is inherent in the company and is independent of economic, political or social factors. By
being intrinsic to an action, it is possible to compensate for its effects by buying shares of various firms, so that,
if a firm is affected by negative causes, it is expected that the same will not happen to the others and the
negative effect can be compensated (Velez, 2003).
Stock Market Risk
Stock market risk can be classified as two types, (i) known as systematic risk, which is due to factors
that affect the particular asset, but not the other assets; that is to say, the risk shown by the sensitivity of the
company's profitability to global forces that affect the entire market. (ii) the factors that, if they affect all assets
in general, as a result of the company's own specific variability, commonly known as non-systematic risk, not
diversifying it, systemic risk or idiosyncratic risk. (Rubio, 1987)
Several studies have associated factors that relate idiosyncratic risk with factors such as strikes,
technological changes, etc. Being intrinsic to an action, indicating that it is possible to compensate for its effects
under portfolio diversification, which means that you can invest in shares of various companies, in such a way
that, if a company is affected by negative causes, it is expected that the same will not happen to the others and
the negative effect can be compensated (Velez, 2003). Now if investment portfolios are well diversified in
modern finance, it is suggested that idiosyncratic risk should not be taken into account or important in the
valuation of risk assets (Malkiel, 2002). Thus, Malkiel in 2006 argues that diversification is very important over
individual actions, but there is no evidence to support that if idiosyncratic risk has a price in the stock market.
Mendonça, Klotlze, Pinto, and Montezan (2012), states that all investors should have a diversified market
5. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 16
portfolio, to eliminate all idiosyncratic risk from the stock market. Fu (2009) argues that there is no mechanism
that guarantees changes when assuming idiosyncratic risk, hence all investors end up with poorly diversified
portfolios and demand compensation for the risks incurred in their investments. But as Ang, Hodrick, Xing, &
Zhang (2009) shows, idiosyncratic low-risk portfolios reflect general factors that are difficult to diversify. Then
it is possible that idiosyncratic volatility plays a role in explaining asset returns, since investors do not always
maintain well diversified portfolios.
IV. METHODOLOGY
This research is carried out under a quantitative approach with a correlational and explanatory scope,
using the methodology of Fu (2009) where it was necessary for each action to quote a minimum of 15 days
during each month for sample period; thus, the sample data of the investigation are related to companies of stock
market for countries belonging to MILA and BM & FBovespa (currently called B3) between 2009-2016 for a
total of 96 months, considering only the ordinary shares that were present in the months of the study period.
Further; following criteria for selecting a population sample of Fama and French (1993), bank´s shares,
insurance and investment funds, companies with preferential actions and those that reported on December 31 a
negative equity (Mendonça, Klotzle, Pinto), & Montezano, 2012) were excluded. According to above, resulting
sample are 42 companies belonging to MILA and 47 companies of the BM & FBOVESPA.
In order to evaluate the relationship between idiosyncratic, systematic volatility and other factors with expected
returns of companies belonging to MILA and BM & FBovespa and in order to identify which of the existing
models in economic theory better predicts expected behavior of returns, 3 methodologies were used for the
calculation of idiosyncratic volatility (i) Three Factors Model and French, (ii) EGARCH model and (iii)
stochastic volatilities; The CAPM beta and the Economática software beta were used to calculate the systematic
volatility.
A. Idiosyncratic Volatility
For calculation of idiosyncratic volatilities, the methodology of Fu (2009) is used following the three-
factor model of Fama & French (1993), which seeks to explain the returns on assets through: (i) excess market
return, (ii) factor that represents the companies sizeSMB (Small Minus Big), (iii) the HML factor (High Minus
Low), (iv) the return of a portfolio shares with high capitalization volume Book to Market and the return of a
portfolio shares with low capitalization volumeBook to Market (Nieto, 2001).
( ) (1)
where τ is the trading day, t indicates the month, Riτ is return on stock i, i, is the risk-free interest rate (10-year
US treasury rate), is market return (S&P MILA Andean 40 and Ibovespa market indexes), , and
are each of the three coefficients of the Fame factors and French and ε_it are the model errors which they
normally distribute with zero mean and variance non-constant are the errors of the model which distribute
normally with zero mean and non-constant variance ( ), which represent residuals of the regression,
measured as the square root used to calculate idiosyncratic volatility VI.
√ √ ( )
On the other hand, EGARCH model was used to calculate the expected idiosyncratic volatility of the
common shares of the sample, estimating a regression for each share of markets studied for 96 months, the
above expressed in equation 2.
( ) ( ) ( )
( ) ∑ ( ) ∑
{ (
√ ( )
) [
| |
√ ( )
√
]}
Where is the excess of the monthly return of each share, excess market return, the regression
used was estimated by nine (9) EGARCH (p, q), and , for each company in the sample,
selecting the lowest Akaike criteria, taking the square root of the best model residues that correspond to the
expected idiosyncratic volatility E (VI).
Now, if the errors in equation 1 are supposed to follow an autoregressive process of moving average ARMA
(1,1) (Ruey, 2005), then:
( ) ( )
the above being a way of estimating the temporary changes in volatility by means of stochastic volatility, where
does not depend on the past observations of the series, but on an unobservable variable, which is usually an
autoregressive stochastic process (Taylor, 1986). Following Ruiz and Veiga (2008) where the model combines
6. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 17
the autoregressive processes of mobile average AR (1) and MA (1); As a result of the above, the monthly
stochastic volatility S (VI) of the shares of the sample is constructed, defined as the root of variance of the
residuals for equation 3 multiplied by the number of days that each share is quoted.
( ) √ √ ( )
B. Systematic volatility
Systematic volatility refers to the risks related to its market or segment; that is, the risk inherent in a
market because it does not affect a title since it does not depend on the characteristics of this or the particular
sector, but on the entire market (Friend, Westerfeld, & Granito, 1978). This risk is defined through Beta (β),
which represents the amount in which the risk of a market for an asset, in addition to the variation in its
performance based on variations in market performance. The systematic volatility measured through Beta is
presented through: i) Economática beta, based on the observations of the variations in the share and the index
during each period of the study, ii) Beta CAPM, calculated through simple linear regression (equation4)
( ) ( )
where is the return of the closing price of the share discounting the risk-free rate, and β are the
regression coefficients and represents the return of the discounted market index at the risk-free rate.
C. Independent Variables of Cross-Sectional Regressions
Other financial variables that explain the expected return of an action are i) size (market value) that is
measured as the market capitalization of the company at the end of the month t, ii) book-to-market which is the
relationship of the book value with respect to the market value of the company, iii) momentum which is the
return of a share in a period of time 5 and 3 months ago, Ret (-2, -7) and Ret (-2 , -5) respectively, iv) Beta,
which was calculated by CAPM model and by the Economática software, vi) liquidity, represented by the
company's ability to meet its short-term obligations.
However, following Fu 2009 methodology, if idiosyncratic and systematic volatility, as natural substitutes for
idiosyncratic and systematic risk affect the expected returns of companies, the existence of some relationship
between returns of assets for MILA and BM & FBovespa markets and the volatilities constructed should be
expected. It is proposed to estimate the following econometric model (see equation 5)
∑ ( )
where the dependent variable is the return of the actions ( ), independent variables the constructed
volatilities( ), the control variables( ) described in the paragraph initial and n the number of companies
per market.
V. ANALYSIS AND CONCLUSIONS
We analyzed the existing relationship between volatilities analysis for MILA and BM&FBOVESPA
and the expected returns of the shares of the companies listed in these markets.
A. Statistics of systematic and idiosyncratic volatilities
Table 1 shows the descriptive statistics ( ̅ )for the three types of idiosyncratic volatilities and the
systematic volatilities calculated for each market. The average idiosyncratic volatility of the shares in the MILA
is 9.2% for EGARCH model, 6.95% for three-factor model of Fama and French and 6.8% for stochastic
volatility model and volatility systematic average is 0.59 for the CAPM model and 0.87 for beta calculated by
Economática system. Now, for the BM & FBovespa stock market, average for idiosyncratic volatility of the
shares in the Mila is 8.7% using the EGARCH model, 7.84% forthree-factor model of Fama and French and
6.40% for Stochastic volatility model and systematic volatility average is 0.83 for the CAPM model and 1.08
the beta calculated for Economática system.
7. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 18
Table 1: Average descriptive statistics of idiosyncratic and systematic volatilities.
MILA
Variable EIV
ln(EVIt/EVIt-
1)
VI ln(VIt/VIt-1) svi
ln(SV
It/SVI
t-1) betacamp betaeco
Average ̅ 9,240563 -0,000073 6,954996 0,000079 6,801785
-
0,000
042
0,593448 0,876317
Median
7,773352 0,000162 6,103376 0 5,959553
-
0,008
431
0,550073 0,888682
Typical
deviation. 5,771157 0,531798 3,903181 0,421802 3,73023
0,425
584
0,584734 0,313737
BM&FBOVESPA
Average
̅ 8,7413 -0,000043 7,8423 0,035479 6,401785
-
0,034459
0,837
900
1,083100
Median
8,1887 -0,000362 7,2668 0,000345 6,359553
-
0,016432
0,852
700
1,030400
Typical
deviation. 2,9771157 0,0531798 3,0301 -0,121802 3,23023 0,125584
0,335
000
0,440500
Likewise, evolution of idiosyncratic and systematic series of volatility for two analyzed markets in this
study during the 96-month period (see graphs 4 and 5). It can be seen that series E (VI) calculated by the
EGARCH model, in general has the same tendency as series VI and S (VI), but with values that are greater than
the calculations of the other two series, this due to that EGARCH models have difficulties in overestimating the
negative market news, which is graphically evident in the great peaks of the series (Engle & Ng, 1993). On the
other hand, S (VI) series is the best idiosyncratic risk indicator, since, according to the financial literature, in the
case of positive or negative events, its behavior is more stable compared to E (VI), showing correct values of
historical risk of each market.
Figure 4: idiosyncratic volatility series
8. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 19
Figure 5: systematic volatility series
About systematic volatility series calculated in model (betaeco and betacapm), their average values are
generally between 0 and 1 meaning that the risk of assets is lower than market risk having a positive correlation
between asset and market showing; that is to say, the assets have less systematic risk than market, less volatility
than general trend and leads to changes in the market, the asset will have less loss than the whole. Regarding
MILA, there is a trend in the study period similar to that described above, however, for BM & FBovespa it
presents periods where beta is greater than 1 which represents that assets have a greater systematic risk than
market, representing more volatile asset. The series of systematic volatility calculated by Economatica are more
stable and less volatile than those for CAPM model.
Table 2: Self-correlations in average lags of idiosyncratic volatilities
1 2 3 4 5 6 7 8 9 10 11 12
MILA
VI 0,404 0,318 0,236 0,180 0,147 0,110 0,110 0,086 0,061 0,028 -0,007 -0,007
ln(VIt/VIt-1) 0,425 0,329 0,260 0,209 0,173 0,136 0,134 0,101 0,078 0,034 -0,011 -0,017
S(VI) 0,356 0,294 0,213 0,163 0,138 0,108 0,104 0,103 0,071 0,036 0,008 0,0057
ln(SVIt/SVIt-1) 0,38 0,306 0,235 0,185 0,16 0,132 0,13 0,114 0,091 0,049 0,0144 0,0024
BM&FBOVESPA
VI 0,724 0,522 0,389 0,267 0,194 0,150 0,148 0,125 0,126 0,105 0,048 0,025
ln(VIt/VIt-1) 0,436 0,239 0,177 0,107 0,116 0,100 0,096 0,066 0,052
-
0,048
0,042 0,011
S(VI) 0,724 0,522 0,389 0,267 0,194 0,15 0,129 0,032 -0,015 -0,07 -0,048 -0,025
ln(SVIt/SVIt-1) 0,425 0,349 0,173 0,117 0,115 0,11 0,093 0,062 0,0552
-
0,042
0,0405 0,0093
For autocorrelation results of volatilities VI and SVI for two markets (see table 2), it is generally
observed that in each of the volatilities, as the number of lags increases autocorrelation approaches zero equal
that in the difference of the average lags of these ln (VIt / VIt-1) and ln ( / ), indicating that
idiosyncratic volatility series calculated in this study do not follow a random process, this means according to
the results from Ang et al. (2006), it is not valid to use value of idiosyncratic volatility in a given month to
estimate value in the following month.
B. Results of cross-sectional regressions
In analysis of the average descriptive statistics of each of the variables (see table 3, 4 and 5) used in the
regression model, average correlations between each of the variables are shown in order to verify which
relationship between the types of volatility described and returns on assets in both markets.
9. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 20
Table 3: Descriptive statistics of the independent variables of the model
MILA
Variable VI S(VI) EIV lnTA lnBM lnliq betacamp betaeco ret7 ret5 ret1 lnret1
Average 6,9550 6,8018 9,2406 14,3368 -0,3513 2,6616 0,5934 0,8763 5,6517 3,6896 0,3967 0,4122
Median 6,1034 5,9596 7,7734 14,4768 -0,4230 1,6969 0,5501 0,8887 2,5672 1,6460 0,0000 0,0556
Typical
deviation
3,9032 3,7302 5,7712 1,7322 0,9008 3,6028 0,5847 0,3137 30,9654 22,1685 10,0941 10,0112
BM&FBOVESPA
Average 7,8423 6,4018 8,7413 14,3964 -0,5476 3,1594 0,8379 1,0831 2,7757 4,2807 0,4713 -7,8187
Median 7,2668 6,3596 8,1887 14,4504 -0,5728 2,2602 0,8527 1,0304 1,8413 3,0761 0,3158 -7,9742
Typical
deviation
3,0301 3,2302 2,9771 1,0475 0,6443 2,5314 0,3350 0,4405 13,3722 18,0027 7,0781 7,0781
Table 4: Correlation between the MILA model variables
**. The orrelation is significant at 0.01 level (bilateral).
*. The correlation is significant at 0.05 level (bilateral).
N = 4.032
RET lnret E(IV) VI S(VI) betacamp betaeco ret7 ret5 lnTA lnBM lnliq
RET
1
,994*
* ,115**
,083**
,094**
-,057**
-,060**
,383**
,515**
,052**
-,072**
0,027
0 0 0 0 0 0 0 0 0,001 0 0,084
lnret
1 ,113**
,081**
,091**
-,058**
-,065**
,388**
,519**
,051**
-,071**
0,026
0 0 0 0 0 0 0 0,001 0 0,103
E(IV)
1 ,157**
,165**
0,026 0,02 ,089**
,139**
-,381**
,139**
-,109**
0 0 0,102 0,202 0 0 0 0 0
VI
1 ,939**
,212**
-,075**
-0,019 ,041**
-,184**
,157**
-,104**
0 0 0 0,225 0,009 0 0 0
S(VI)
1 ,214**
-,053**
-0,003 ,050**
-,192**
,178**
-,095**
0 0,001 0,825 0,002 0 0 0
betaca
mp
1 ,060**
-,066**
-,069**
0,017 -0,017 -0,014
0 0 0 0,289 0,292 0,372
betaec
o
1 -,121**
-,117**
,278**
-,110**
,236**
0 0 0 0 0
ret7
1 ,755**
,086**
-,171**
0,017
0 0 0 0,267
ret5
1 ,049**
-,119**
0,013
0,002 0 0,41
lnTA
1 -,497**
,601**
0 0
lnBM
1 -,280**
0
lnliq
1
10. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 21
Tabla 5: correlación entre las variables del modelo BM&FBOVESPA
RET lnret E(IV) VI S(VI) betacamp betaeco ret7 ret5 lnTA lnBM lnliq
RET
1 1,000**
,410**
,491**
,492**
,318**
0,008 ,359**
,509**
-0,157 0,13 -0,089
0 0 0 0 0,002 0,936 0 0 0,126 0,207 0,389
lnret
1 ,408**
,489**
,489**
,316**
0,009 ,359**
,508**
-0,155 0,128 -0,088
0 0 0 0,002 0,932 0 0 0,131 0,215 0,395
E(IV)
1 ,541**
,540**
,570**
,304**
,477**
,582**
-,620**
,546**
-,433**
0 0 0 0,003 0 0 0 0 0
VI
1 1,000**
,553**
0,028 0,172 ,285**
-,401**
,409**
-0,183
0 0 0,786 0,095 0,005 0 0 0,075
S(VI)
1 ,552**
0,026 0,171 ,285**
-,401**
,409**
-0,182
0 0,799 0,097 0,005 0 0 0,076
betacamp
1 ,384**
,221*
,353**
-,581**
,509**
-,428**
0 0,03 0 0 0 0
betaeco
1 0,124 0,106 -,548**
,422**
-,524**
0,23 0,306 0 0 0
ret7
1 ,682**
-0,078 0,025 -0,095
0 0,448 0,813 0,359
ret5
1 -0,139 0,091 -0,102
0,177 0,376 0,324
lnTA
1 -,972**
,859**
0 0
lnBM
1 -,846**
0
lnliq
1
**. The orrelation is significant at 0.01 level (bilateral).
*. The correlation is significant at 0.05 level (bilateral).
N = 4.512
Correlation for MILA market between 3 idiosyncratic volatilities and returns in continuous time is
positive and significant at the 1% level, although the most correlated of 3 is the expected volatility E (VI), in
volatility Systematically case, correlation is negative and significant at 1% level for two constructed betas,
however the most significant is the one calculated by the Economática system, in relation to the other
independent variables it is observed that the only not significant variable at 1 % or 5% with returns is liquidity
(lnliq). However, correlation between three volatilities is significant, being better correlated VI and S (VI). The
two variables taken as momentum are also correlated with returns, although Ret5 has better significance than
Ret7. Compared to BM & FBovespa market, the 3 idiosyncratic volatilities have a positive and significant 1%
correlation with returns, although the best correlation is stochastic volatility S (VI), in case of systematic
volatility the only one that is significant is beta calculated by CAPM model positively at 1% significance, of
independent variables the only significant ones are Ret5 and Ret7 momentum, with Ret5 being the best
correlated.
The last stage of this study included linear regressions between research variables, where for each
company in the sample a linear regression was made between monthly return (Ret1 and lnRet1) and other
variables that according to correlation tables 4 and 5 were significant with returns. For each model beta
coefficients of each variable were calculated, as well as their individual significance, the R-square and global
significance, tables 6 and 7 summarize average statistics of each model in the 96-month period.
Model 1 is based on Fama and French model (1992), which evaluates relationship between variables:
beta, market value and book-to-market index with returns, in case of MILA, the variable used as beta it was
betaeco and for BM & FBOVESPA it was betacapm, since these showed more significant results in tables 4 and
5 respectively. In MILA market, beta explains variations in returns because its coefficient is significant, a
similar case occurs in Brazilian market where coefficient is significant with a p-value close to zero. In results of
11. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 22
Fama and French (1992) a negative relationship between market value (lnTA) of a company and return on its
action is identified, in case of the two markets studied this condition is satisfied, but none of 2 coefficients is
significant. In relation to model 2, unlike model 1, one of the momentum variables that best correlates with
returns is included, in both markets variable Ret5 is used, this indicates cumulative return from month t-5 to
month t- 2, for both it is significant and its p-value is less than 1%
In addition to four variables included in Model 2, Model 3,4 and 5 included variables VI, S (VI) and
E(VI), in general the significance of the models is significant and only improves in case of VI for MILA and S
(VI) for Brazilian market BM & FBOVESPA, wheredetermination coefficientR^2, like the F statistic, were
higher than model 2. The coefficients of respective volatilities were positive and significant at 1%, additionally
variable that represents systematic risk (betaeco) in MILA was significant in each of the three models, contrary
to happened in Brazilian market where betacapm is not significant.
In models 6,7 and 8,betaeco and betacapm variable are excluded from models for MILA and BM &
FBovespa markets, respectively, it can be observed that in case of first market significance of models decreases,
indicating the importance of this type of risk in forecast of expected returns of companies. Now, in second
market case, models improve their significance, indicating that expected returns in this market have little
influence of systematic risk, therefore to a large extent returns of the assets of Brazilian market are explained by
idiosyncratic risk. Thus, model 9 was constructed in order to analyze the impact of independent variables that
best correlated with returns, since in MILA chaos the momentum variable and book to market index are
significant and with positive average betas, For Brazilian market, only the variable chosen as momentum was
significant and with a positive beta coefficient. The foregoing indicates that in conformation of expected returns,
other financial factors must also be taken into account other than the two types of risk (systematic and
idiosyncratic) to which the assets of these two markets are exposed.
Table 6: Return regression models in relation to idiosyncratic volatility, systematic volatility and other
specific variables BM & FBOVESPA
Modelo Variables
ret1 lnret1
β average t- Statistic
P-
Value
F- Statistic
P- Value
(F)
β average t- Statistic
P-
Value
F- Statistic
P- Value
(F)
1
betacamp 6,914 2,639 0,010 6,871 2,624 0,010
lnTA -0,467 -0,078 0,938 0,102 3,493 ,019b
-0,548 -0,092 0,927 0,101 3,455 ,020b
lnBM -1,240 -0,173 0,863 -1,357 -0,189 0,851
2
betacapm 3,368 1,362 0,177 3,327 1,346 0,182
lnTA 1,391 0,257 0,797 0,281 8,890 ,000b
1,309 0,242 0,809 0,280 8,850 ,000b
lnBM 1,800 0,277 0,782 1,681 0,259 0,796
Ret5 0,138 4,756 0,000 0,138 4,754 0,000
3
betacapm 3,095 1,249 0,215 3,059 1,235 0,220
lnTA 5,233 0,836 0,406 5,076 0,811 0,420
lnBM 5,154 0,730 0,467 0,292 7,437 ,000b
4,969 0,704 0,483 0,291 7,389 ,000b
Ret5 0,119 3,566 0,001 0,119 3,575 0,001
EIV 0,210 1,204 0,232 0,206 1,180 0,241
4
betacapm -1,146 -0,454 0,651 -1,164 -0,461 0,646
lnTA -3,355 -0,657 0,513 -3,414 -0,668 0,506
lnBM -5,026 -0,810 0,420 0,397 11,846 ,000b
-5,111 -0,823 0,413 0,395 11,754 ,000b
Ret5 0,120 4,447 0,000 0,120 4,444 0,000
VI 1,015 4,159 0,000 1,010 4,136 0,000
5
betacapm -1,147 -0,451 0,551 -1,159 -0,461 0,646
lnTA -3,255 -0,652 0,412 -3,314 -0,668 0,506
lnBM -5,015 -0,610 0,410 0,407 12,542 ,000b
-5,111 -0,823 0,413 0,495 11,754 ,000b
Ret5 0,110 4,347 0,000 0,120 4,444 0,000
S(VI) 1,011 4,059 0,000 1,010 4,136 0,000
6
lnTA 3,015 0,500 0,618 2,884 0,479 0,633
lnBM 3,464 0,499 0,619 0,280 8,851 ,000b
3,298 0,475 0,636 0,279 8,804 ,000b
Ret5 0,128 3,918 0,000 0,128 3,925 0,000
E(VI) 0,230 1,320 0,190 0,225 1,295 0,199
7
lnTA -2,346 -0,513 0,609 -2,389 -0,522 0,603
lnBM -4,094 -0,702 0,484 -4,164 -0,714 0,477
Ret5 0,118 4,466 0,000 0,396 14,886 ,000b
0,118 4,462 0,000 0,394 14,767 ,000b
VI 0,967 4,410 0,000 0,961 4,381 0,000
8
lnTA -2,346 -0,513 0,609 -2,389 -0,522 0,603
lnBM -4,094 -0,702 0,484 0,396 14,886 ,000b
-4,164 -0,714 0,477 0,394 14,767 ,000b
Ret5 0,118 4,466 0,000 0,118 4,462 0,000
S(VI) 0,967 4,410 0,000 0,961 4,381 0,000
9
lnTA -1,444 -0,288 0,774 -1,492 -0,298 0,766
lnBM -0,404 -0,064 0,949 0,266 11,132 ,000b
-0,497 -0,079 0,937 0,266 11,098 ,000b
Ret5 0,150 5,394 0,000 0,150 5,388 0,000
12. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 23
Table 7: Regression models of returns in relation to idiosyncratic volatility, systematic volatility and other
specific MILA variables
it can be concluded that relationship between idiosyncratic volatility, systematic volatility and other factors with
the expected returns of the companies belonging to MILA and BM & FBovespa is significant and these are an
explanatory factor of returns, identifying this result in correlation analyzes and statistics of estimated models;
however, there is a high significance in some factors more than others; since idiosyncratic risk is present in two
stock markets studied regardless how it is estimated since the three models are significant, however, in BM &
FBovespa market it has more presence, while in MILA the systematic risk is more significant. However, in
order to evaluate the behavior of expected returns of assets, not only calculated volatilities must be taken into
account, but also other financial variables such as size of the company, book to market and momentum variable
that are significant predicting expected returns, also in this study it was identified that stochastic volatility
behaves very similar to Fama and French (1992), nevertheless the most representative variable to predict returns
is idiosyncratic volatility calculated by stochastic models given that its conformation It depends on exogenous
and endogenous variables unlike the other two volatilities.
Model
o
Variable
s
Ret1 lnRet1
β
average
t-
Statistic
P-
Value
F-
Statistic
P- Value
(F)
β
average
t-
Statistic
P-
Value
F-
Statistic
P- Value
(F)
1
betaeco -2,333 -4,434 0,000
0,006
9
9,334 0,000 -2,379 -4,559 0,000
0,007
2
9,680 0,000
lnTA 0,242 2,220 0,026 0,240 2,221 0,026
lnBM 0,611 3,012 0,003 0,603 2,998 0,003
2
betaeco -2,052 -3,871 0,000
0,010
8
10,983 0,000 -2,095 -3,986 0,000
0,011
2
11,388 0,000
lnTA 0,232 2,132 0,033 0,230 2,131 0,033
lnBM 0,697 3,422 0,001 0,690 3,415 0,001
Ret5 0,029 3,978 0,000 0,029 4,050 0,000
3
betaeco -2,296 -4,272 0,000
0,011
3
10,230 0,000 -2,334 -4,380 0,000
0,012
9
10,520 0,000
lnTA 0,357 3,016 0,003 0,353 3,002 0,003
lnBM 0,723 3,551 0,000 0,716 3,543 0,000
Ret5 0,025 3,407 0,001 0,025 3,483 0,001
EIV 0,082 2,674 0,008 0,080 2,642 0,008
4
betaeco -2,016 -3,807 0,000
0,013
7
11,165 0,000 -2,059 -3,922 0,000
0,014
1
11,474 0,000
lnTA 0,275 2,513 0,012 0,273 2,509 0,012
lnBM 0,638 3,127 0,002 0,632 3,120 0,002
Ret5 0,027 3,781 0,000 0,028 3,853 0,000
VI 0,142 3,432 0,001 0,140 3,420 0,001
5
betaeco -2,060 -3,888 0,000
0,012
2
9,951 0,000 -2,103 -4,002 0,000
0,012
5
10,224 0,000
lnTA 0,264 2,404 0,016 0,261 2,396 0,017
lnBM 0,646 3,156 0,002 0,640 3,154 0,002
Ret5 0,028 3,798 0,000 0,028 3,873 0,000
S(VI) 0,105 2,404 0,016 0,101 2,350 0,019
6
lnTA 0,204 1,805 0,071
0,008
1
8,189 0,000 0,197 1,757 0,079
0,008
2
8,316 0,000
lnBM 0,700 3,431 0,001 0,692 3,419 0,001
Ret5 0,030 4,142 0,000 0,031 4,236 0,000
E(VI) 0,059 1,971 0,049 0,057 1,921 0,055
7
lnTA 0,169 1,590 0,112
0,010
1
10,298 0,000 0,164 1,556 0,120
0,010
3
10,459 0,000
lnBM 0,622 3,045 0,002 0,615 3,036 0,002
Ret5 0,031 4,315 0,000 0,031 4,402 0,000
VI 0,145 3,502 0,000 0,144 3,492 0,000
8
lnTA 0,153 1,445 0,148
0,008
5
8,630 0,000 0,148 1,406 0,160
0,008
6
8,742 0,000
lnBM 0,631 3,081 0,002 0,626 3,076 0,002
Ret5 0,031 4,349 0,000 0,032 4,439 0,000
S(VI) 0,104 2,375 0,018 0,100 2,321 0,020
9
lnTA 0,123 1,165 0,244
0,007
1
9,617 0,000 0,118 1,133 0,257
0,007
3
9,852 0,000
lnBM 0,682 3,344 0,001 0,675 3,335 0,001
Ret5 0,033 4,528 0,000 0,033 4,615 0,000
13. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 24
References
[1]. Ang, A., Hodrick, R., Xing, Y., & Zhang, X. (2006). The cross-section of volatility and expected
returns. Journal of Finance, 61(1), 259-299.
[2]. Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2009). High idiosyncratic volatility and low returns:
International and further U.S. evidence. Journal of Financial Economics, 91(1), 1–23.
http://doi.org/10.1016/j.jfineco.2007.12.005
[3]. Angel, V. (2000). Turbulencias financieras t riesgos de mercado.Madrid: Finacial times, Prentice Hall.
[4]. Angelidis, T. (2010). Idiosyncratic Risk in Emerging Markets, 45, 1053–1078.
[5]. Banco Mundial. (2018, Junio). Banco Mundial. Retrieved from
https://datos.bancomundial.org/indicador
[6]. BM&FBovespa. (2017). Informe Anual BM&FBovespa 2017. Sao Paulo: BM&FBovespa.
[7]. Brown, S., & B, W. (1980). Measuring security price performance. Journal of Financial Economics,
8(3), 205-258.
[8]. Engle, R., & Ng, V. (1993). Measuring and testing the impact of news on volatility. Journal of Finance,
48, 1749-1778.
[9]. Fama, E., & French, K. (1992). The Cross-Section of Expected Stock Returns. The Journal of Finance,
XLVII(2), 427-465.
[10]. Fama, E., & French, K. (1993). Common risk factors in the returns on stocks and bonds. Journal of
Financial Economics, 33(1), 3-56. doi:http://doi.org/10.1016/0304-405X(93)90023-5
[11]. Fama, E., & Macbeth, J. D. (1973). Risk, return and equilibrium: empirical tests. Journal of Political
Economy, 81(3), 607-636.
[12]. Friend, Westerfeld, & Granito. (1978). New Evidence on the Capital Asset Pricing Model. Journey of
Finance.
[13]. Fu, F. (2009). Idiosyncratic risk and the cross-section of expected stock returns. Journal of Financial
Economics, 91(1), 24-37. doi:http://doi.org/10.1016/j.jfineco.2008.02.003
[14]. Han, Y., & Lesmond, D. (2011). Liquidity biases and the pricing of cross-sectional idiosyncratic
volatility. Review of Financial Studies, 24(5), 1590–1629. http://doi.org/10.1093/rfs/hhq140
[15]. Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios
and capital budgets. The Review of Economics and Statistics, 47(1), 13–37.
http://doi.org/10.2307/1924119
[16]. Mackinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35,
13-39.
[17]. Malkiel, B. and X. (2002). Idiosyncratic Risk and Security Returns. Working Paper, Pricenton
University.
[18]. Mendonça, F., Klotzle, M., Pinto, A., & Montezano, R. (2012). A relação entre risco idiossincrático e
retorno no mercado acionário brasileiro. Revista Contabilidade & Finanças, 23(60), 246-257.
[19]. Merton, R. (1987). A simple model of capital market equilibrium with incomplete information. The
Journal of Finance. http://doi.org/10.1111/j.1540-6261.1987.tb04565.x
[20]. Mustapha, S. A. (2013). ASSET VOLATILITY AND PRICING IN THE NIGERIAN STOCK
MARKET Saidi Atanda MUSTAPHA. Research Consurtium (AERC) in Nairobi.
[21]. Nartea, G. V, & Ward, B. D. (2009). Does Idiosyncratic Risk Matter ? Evidence from the Philippine
Stock Market, 2, 47–67.
[22]. Nieto, B. (2001). Los modelos multifactoriales de valoración de activos: Un análisis empírico
comparativo. IVIE Working Paper, 29(WP-EC 2001-19).
[23]. Núñez, M., & Cano, R. (2002). LAS TRES CARAS DEL RIESGO ESTRATÉGICO: RIESGO
SISTEMÁTICO, RIESGO TÁCTICO Y RIESGO IDIOSINCRÁSICO.
[24]. NYSE Euronext. (2018, Junio). NYSE Euronext. Retrieved from https://www.nyse.com/index.
[25]. Orozco, A., & Ramírez, L. (2016). Análisis comparativo de los mercados bursátiles que integran el
MILA. Revista Contexto, 5, 53-62.
[26]. Pukthuanthong-Le, K., & Visaltanachoti, N. (2009). Idiosyncratic volatility and stock returns: a cross
country analysis. Applied Financial Economics, 19(16), 1269–1281.
http://doi.org/10.1080/09603100802534297
[27]. Ruey, S. (2005). Analysis of Finalcial Time Series. Chicago: Wiley-Interscience.
[28]. Rubio, F. (1987). CAPM y APT: una nota técnica, 26. Retrieved from
http://128.118.178.162/eps/fin/papers/0402/0402007.pdf
[29]. Ruiz, E., & Veiga, H. (2008). Modelos de Volatilidad Estocástica: una alternativa atractiva y factible
para modelizar la evolución de la volatilidad. Anales de estudios económicos y empresariales, 28, 9-68.
[30]. Sharpe, W. F. (1964). Capital asset prices: A theroy of market equilibrium under conditions of risk.
The Journal of Finance, 19(3), 425–442. http://doi.org/10.2307/2329297
14. Relationship Between Systematic and Idiosincratic Risk with the Expected Returns of Mila and Bm &
International Journal of Business Marketing and Management (IJBMM) Page 25
[31]. Taylor, S. (1986). Modelling financial time series (2 ed.). Lancaster, UK: World Scientific.
[32]. Ugedo, M. (2003). Metodología de los estudios de sucesos: una revisión. Investigaciones Europeas de
Direccion y Economia de La Empresa, 9, 197–244.
[33]. Uribe, J., & Mosquera, S. (2014). Efectos del MILA en la eficiencia de portafolio de los mercados de
acciones colombiano, peruano y chileno. Cuadernos de Administración, 30(52), 75-83.
[34]. Velez, I. (2003). Portfolio Analysis (Análisis De Portafolio). Documento de trabajo.
doi:http://dx.doi.org/10.2139/ssrn.986978