Does Idiosyncratic Risk Matter? Evidence from the Philippine Stock Market

Abstract

This research examines if the three main empirical findings on idiosyncratic
volatility (IV) in the US market also apply to small but open emerging
markets such as the Philippines. Our results indicate that we cannot
generalise the US findings for the Philippine stock market. First, contrary to
the US findings of Campbell, Lettau, Malkiel and Xu (2001), we do not find
a trend in idiosyncratic volatility over our study period. Second, we find
that average equal-weighted idiosyncratic volatility is negatively related to
market returns, which is opposite to the findings of Goyal and Santa-Clara
(2003) for the US market. Third, we find no relation between IV and abnormal
returns, contrary to the findings of Ang, Hodrick, Xing and Zhang (2006),
and Brockman and Yan (2006) for the US market.