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@article{ART002323126},
author={Youngkyung Ok and Jungmu Kim},
title={Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model},
journal={Journal of Insurance and Finance},
issn={2384-3209},
year={2018},
volume={29},
number={1},
pages={63-92},
doi={10.23842/jif.2018.29.1.003}

TY - JOUR
AU - Youngkyung Ok
AU - Jungmu Kim
TI - Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model
JO - Journal of Insurance and Finance
PY - 2018
VL - 29
IS - 1
PB - Korea Insurance Research Institute
SP - 63
EP - 92
SN - 2384-3209
AB - We examine the effect of idiosyncratic volatility on expected returns using daily data for common stocks listed on Korean Stock Exchange for the period of January 2000 to December 2015. In particular, we estimate idiosyncratic volatility based on the Carhart(1997) four-factor model in order to control for momentum, a systematic risk for the post-2000 period. Methodology and main findings are as follows. First, although the value-weighted average return differential between the lowest and highest idiosyncratic volatility portfolios is approximately –1.15% per month, the risk-adjusted return is approximately –0.71% per month yet statistically insignificant. Second, we conduct a double-sort portfolio analysis to control for potential effects of firm characteristics. After controlling for turnover, the trading strategy yields –0.86% per month on average, but risk-adjusted return decreases to –0.43% insignificant. Finally, we run Fama and MacBeth(1973) regressions to control for various firm characteristics at the portfolio level. While Idiosyncratic volatility account for the cross-section of returns on idiosyncratic volatility sorts, it becomes insignificant when controlling for turnover. Our findings suggest that there is no robust evidence of a negative relation between idiosyncratic volatility relative to the Carhart(1997) four-factor model and expected returns and that the relationship highly relies on liquidity.
KW - Idiosyncratic Risk;Idiosyncratic Volatility;Four-Factor Model;Momentum Effect;Anomaly
DO - 10.23842/jif.2018.29.1.003
ER -

Youngkyung Ok and Jungmu Kim. (2018). Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model. Journal of Insurance and Finance, 29(1), 63-92.

Youngkyung Ok and Jungmu Kim. 2018, "Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model", Journal of Insurance and Finance, vol.29, no.1 pp.63-92. Available from: doi:10.23842/jif.2018.29.1.003

Youngkyung Ok, Jungmu Kim "Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model" Journal of Insurance and Finance 29.1 pp.63-92 (2018) : 63.

Youngkyung Ok, Jungmu Kim. Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model. 2018; 29(1), 63-92. Available from: doi:10.23842/jif.2018.29.1.003

Youngkyung Ok and Jungmu Kim. "Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model" Journal of Insurance and Finance 29, no.1 (2018) : 63-92.doi: 10.23842/jif.2018.29.1.003

Youngkyung Ok; Jungmu Kim. Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model. Journal of Insurance and Finance, 29(1), 63-92. doi: 10.23842/jif.2018.29.1.003

Youngkyung Ok; Jungmu Kim. Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model. Journal of Insurance and Finance. 2018; 29(1) 63-92. doi: 10.23842/jif.2018.29.1.003

Youngkyung Ok, Jungmu Kim. Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model. 2018; 29(1), 63-92. Available from: doi:10.23842/jif.2018.29.1.003

Youngkyung Ok and Jungmu Kim. "Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model" Journal of Insurance and Finance 29, no.1 (2018) : 63-92.doi: 10.23842/jif.2018.29.1.003