A1 Journal article – refereed

Are idiosyncratic risk and extreme positive return priced in the
Indian equity market?





List of Authors: Syed Riaz Mahmood Ali, Mohammad Nurul Hasan, Ralf Östermark

Publication year: 2020

Journal: International Review of Economics and Finance

DOI: http://dx.doi.org/https://doi.org/10.1016/j.iref.2020.08.008

URL: https://www.sciencedirect.com/science/article/abs/pii/S1059056020301775


Abstract

In this paper, we examine whether the IVOL (Idiosyncratic Volatility) and MAX (Extreme Positive
Return) can predict future returns in the Indian stock market where a short sale is restricted with
no naked short sale allowed. We find that both IVOL and MAX have significantly positive and
persistent effects on expected returns in this market. In subsamples, we document that small firms
have positive IVOL and MAX effects. However, more interestingly, after including all the controls,
in contrast to the finding of Bali et al. (2011), the IVOL and MAX effects are significantly negative
for the large firms in this market implying the investors’ response to IVOL and MAX with the
perception of low growth prospects of large firms. We use both portfolio level and firm-level Fama
Macbeth cross-sectional analysis to show the effects.


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Last updated on 2021-24-06 at 09:32