Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Equity Anomalies and Idiosyncratic Risk Around the World

Last Updated on 10 February, 2024 by Rejaul Karim

The paper “Equity Anomalies and Idiosyncratic Risk Around the World” by Steven Fan, Scott Opsal, and Linda Yu examines how idiosyncratic risk is correlated with a wide array of anomalies in international equity markets, including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals.

The authors use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. The paper provides strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return.

It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. The paper also finds that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries.

Abstract Of Paper

In this study, we examine how idiosyncratic risk is correlated with a wide array of anomalies, including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals, in international equity markets. We use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. We provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. In addition, we find that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries. Our results support the mispricing explanation of the existence of various anomalies across global markets.

Original paper – Download PDF

Here you can download the PDF and original paper of Equity Anomalies and Idiosyncratic Risk Around the World.

(An option to download will come shortly)

Author

Steven Fan
University of Wisconsin – Whitewater

Scott Opsal
University of Wisconsin – Whitewater

Linda Yu
University of Wisconsin – Whitewater

Conclusion

In conclusion, the paper “Equity Anomalies and Idiosyncratic Risk Around the World” by Steven Fan, Scott Opsal, and Linda Yu provides a comprehensive analysis of the relationship between idiosyncratic risk and a wide range of anomalies in international equity markets.

The authors use zero-cost trading strategy and multifactor models to demonstrate that these anomalies produce significant abnormal returns. The paper highlights the significant variation in abnormal returns across different countries and between developed and emerging markets.

The findings of the paper provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. The paper concludes that the existence of these well-known anomalies is due to idiosyncratic risk.

Moreover, the paper finds that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries.

Related Reading:

Liquidity Style of Mutual Funds

Using Style Index Momentum to Generate Alpha

FAQ

What is the focus of the paper “Equity Anomalies and Idiosyncratic Risk Around the World”?

The paper explores the correlation between idiosyncratic risk and various anomalies in international equity markets. The examined anomalies include asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals.

What methodologies do the authors use in the paper to demonstrate their findings?

The authors utilize zero-cost trading strategy and multifactor models to show that the examined anomalies lead to significant abnormal returns in international equity markets.

What is the main evidence supporting the limits of arbitrage theory across countries?

The paper provides strong evidence supporting the limits of arbitrage theory across countries by establishing a positive correlation between idiosyncratic risk and abnormal return. This correlation suggests that the existence of well-known anomalies is attributed to idiosyncratic risk.

Check The Leading Resource On The Internet For Research And Academic Papers

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password