MODELING RISK MEASUREMENT IN EMERGING MARKET
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May 7, 2021
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Idiosyncratic Risk, New Model
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Abstract
Purpose – This study aims to make modeling measurement risk in capital market variables.
Design/methodology/approach – Using Mathematical approaches to integrated a noticeable increase in the firm-level idiosyncratic risk, the volatility measure of coeficient is greater and has a stronger upward trend than the new idiosyncratic volatility measure.
Findings – Using the the model decomposing total risk in market variance extended by Bali et.al, we integrated the model with initial model, Fama-French idiosyncratic risk Model, we sugested new model:
Rit -RFt = ai + bi (R Mt R Ft) + var.HLt+ var.SBt +Var.MW +Var.RW+ Var.CMA + ei
Originality – This paper introduces a variance measure of aggregate idiosyncratic risk, which does not require estimation of market betas or correlations and is based on the concept of gain from portofolio diversification.
Keywords: Idiosyncratic Risk, New Model
Paper Type Research Result
Article Details
How to Cite
Asri, M. (2021). MODELING RISK MEASUREMENT IN EMERGING MARKET. Contemporary Journal on Business and Accounting, 1(1), 1-22. https://doi.org/10.58792/cjba.v1i1.10
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Allen, E. J., Larson, C. R., & Sloan, R. G. (2010). Accrual Reversals, Earnings and Stock Returns, (May).
Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2006). The Cross-Section of Volatility and Expected Return. Journal of Finance, LXI(1), 259–299.
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
Angeletos, G. M. (2007). Uninsured idiosyncratic investment risk and aggregate saving. Review of Economic Dynamics, 10(1), 1–30. http://doi.org/10.1016/j.red.2006.11.001
Arena, M. P., Haggard, K. S., & Yan, X. S. (2008). Price Momentum and Idiosyncratic Volatility. Financial Review, 43(2), 159–190. http://doi.org/10.1111/j.1540-6288.2008.00190.x
Asri, M., Ali, M., Habbe, A. H., & Rura, Y. (2017). Idiosyncratic Risk as Indicator Asset Pricing. Scientific Research Journal (SCIRJ) http://www.scirj.org/2017/may-2017-paper.php?rp=P0517398, V(V), 5–18.
Bali, T. g, Cakici, N., Yan, X., & Zhang, Z. (2005). Does Idiosyncratic Risk Really Matter? The Journal of Finance, 60(2), 905–929. http://doi.org/10.1111/j.1540-6261.2005.00750.x
Basilico, E. (2014). The Quality of Earnings , Governance and Future Stock Returns in Europe . An Empirical Study . Disertation University St.Gallen, (4203).
Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings: An event-based approach. Journal of Accounting and Economics, 30(1), 215–241. http://doi.org/10.1111/j.1911-3846.2011.01151.x
Berggrun, L., Lizarzaburu, E., & Cardona, E. (2016). Idiosyncratic volatility and stock returns: Evidence from the MILA. Research in International Business and Finance, 37, 422–434. http://doi.org/10.1016/j.ribaf.2016.01.011
Berrada, T., & Hugonnier, J. (2013). Incomplete information, idiosyncratic volatility and stock returns. Journal of Banking and Finance, 37(2), 448–462. http://doi.org/10.1016/j.jbankfin.2012.09.004
Bhootra, A., & Hur, J. (2014). High Idiosyncratic Volatility and Low Returns : A Prospect Theory Explanation. Financial Management, 1–26.
Bolton, P., Chen, H., & Wang, N. (2011). A Unified Theory of Tobin’s q, Corporate Investment, Financing, and Risk Management. Journal of Finance, 66(5), 1545–1578. http://doi.org/10.1111/j.1540-6261.2011.01681.x
Bradshaw, M. T., Richardson, S. a., & Sloan, R. G. (2006). The relation between corporate financing activities, analysts’ forecasts and stock returns. Journal of Accounting and Economics, 42(1–2), 53–85. http://doi.org/10.1016/j.jacceco.2006.03.004
Brockman, P., Schutte, M. G., & Yu, W. (2009). Is Idiosyncratic Risk Priced ? The International Evidence. Working Paper, University of Missouri-Columbia, (906), 1–52.
Chen, C. (2004). Earnings persistence and stock price under-and overreaction. Working Paper, (March). Retrieved from http://www.saf.uwaterloo.ca/seminars/old_papers/Changling Chen_Earnings Persistence and Stock Prices.pdf
Chen, H., & Chen, S. (2012). Investment-cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series. Journal of Financial Economics, 103(2), 393–410. http://doi.org/10.1016/j.jfineco.2011.08.009
Chiu, J., Chung, H., Ho, K., & Wu, C. (2018). Investor sentiment and evaporating liquidity during the financial crisis. International Review of Economics and Finance. http://doi.org/10.1016/j.iref.2018.01.006
Cogley, T. (2002). Idiosyncratic risk and the equity premium: Evidence from the consumer expenditure survey. Journal of Monetary Economics, 49(2), 309–334. http://doi.org/10.1016/S0304-3932(01)00106-4
Cotter, J., Sullivan, N. O., & Rossi, F. (2015). The conditional pricing of systematic and idiosyncratic risk in the UK equity market. International Review of Financial Analysis, 37, 184–193. http://doi.org/10.1016/j.irfa.2014.10.002
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2–3), 344–401. http://doi.org/10.1016/j.jacceco.2010.09.001
Dechow, P. M. (1994). Accounting & Economics The role of accounting accruals. Journal of Accounting and Economics, 18, 3–42. http://doi.org/10.1016/0165-4101(94)90016-7
Dechow, P. M., Richardson, S. a., & Sloan, R. G. (2008). The persistence and pricing of the cash component of earnings. Journal of Accounting Research, 46(3), 537–566. http://doi.org/10.1111/j.1475-679X.2008.00283.x
Dechow, P., Sloan, R. G., & Sweeney, A. (1995). Detecting Earning Management. The Accounting Review, 70 No.2, 193–225.
Dixit, A., & Pindyck, R. (1994). Investment Under Uncertainty. Princenton U.press, 1–40.
Easley, D., & O’Hara, M. (2004). Information and the Cost of Capital. The Journal of Finance, LIX(4).
Fairfield, P. M. (2006). Discussion of “The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly.” Review of Accounting Studies, 11(2–3), 297–303. http://doi.org/10.1007/s11142-006-9005-0
Fairfield, P. M., Whisenant, J. S., & Yohn, T. L. (2003). Accrued Earnings and Growth : Implications for Future Profitability and Market Mispricing. The Accounting Review, 78(1), 353–371.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics.
Fama, E. F., & French, K. R. (2014). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1–22. http://doi.org/10.1016/j.jfineco.2014.10.010
Fan, S., & Yu, L. (2013). Accrual Anomaly and Idiosyncratic Risk: International Evidence. The International Journal of Business and Finance Research, 7(4), 63–75. Retrieved from http://search.proquest.com/docview/1352855709?accountid=48385
Francis, J., Lafond, R., & Schipper, K. (2004). Costs of Equity and Earnings Attributes. The Accounting Review, 79(4), 967–1010.
Frankel, R., & Litov, L. (2009). Earnings persistence. Journal of Accounting & Economics, 47, 182–190. http://doi.org/10.1016/j.jacceco.2008.09.005
Fu, F. (2009). Idiosyncratic risk and the cross-section of expected stock returns. Journal of Financial Economics, 91(1), 24–37. http://doi.org/10.1016/j.jfineco.2008.02.003
Goyal, A., & Santa-clara, P. (2003). Idiosyncratic Risk Matters ! Journal of Finance, 58(3), 975–1007.
Habbe, A. H. (2017). Estimation Error of Earnings Information : A Test of Representativeness and Anchoring-adjustment Heuristic. International Journal of Economics and Financial Issues, 7(1), 224–233.
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