Idiosynchratic Volatilities and Future Stock Return based on Asset Pricing Model: an Attitude toward Risk Tolerance of Return

Subject Areas : Journal of Investment Knowledge

Fatemeh Zamani ¹ , Masoumeh Latifi Benmaran ² , Roya Darabi ³

1 - Ph.D. student of Financial Engineering, Financial Management Department, Faculty of Managerial Accounting and Economy, South of Tehran Branch, Islamic Azad University, Tehran, Iran.
2 - Assistant Professor, Faculty member of South of Tehran Branch, Islamic Azad University, Tehran, Iran.
3 - Associate Professor, Faculty member of South of Tehran Branch, Islamic Azad University, Tehran, Iran.

Received: 2020-05-27 Accepted : 2020-07-18 Published : 2022-12-22

Keywords: Asset Pricing, Future return, Idiosynchratic volatilities,

Abstract :

The main purpose of this study was to evaluate the tolerance of returns to the variations of stocks idiosynchratic volatilities, in order to present an explicit response to previous empirical evidences that documents existence of positive or negative relationship between idiosynchratic volatilities and stock returns. The statistical population of study is all active listed firms in Tehran stock exchange during years 2013 to 2018, which among them, 155 firms were active in market in whole period of research and were studied. The data of research were analyzed through regression models with approach of panel data. The results of regression models in testing hypotheses of study showed that the general relationship between stock idiosynchratic volatilities and future stock returns is in a negative direction. But, the more accurate evaluations under second model showed that this relationship is affected by risk tolerance of return and there is a U-shape relationship between idiosynchratic volatilities and future stock returns.

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