Are beta, firm size, liquidity and idiosyncratic volatility related to stock returns? Australian evidence

Clayton, L, Dempsey, M and Veeraraghavan, M 2007, 'Are beta, firm size, liquidity and idiosyncratic volatility related to stock returns? Australian evidence', in John Unkles F Fin, Kevin Davis SF Fin (ed.) Proceedings of the 12th Finsia and Melbourne Centre for Financial Studies Banking and Finance Conference 2007, Melbourne, Australia, 24 - 25th September 2007, pp. 1-33.


Document type: Conference Paper
Collection: Conference Papers

Title Are beta, firm size, liquidity and idiosyncratic volatility related to stock returns? Australian evidence
Author(s) Clayton, L
Dempsey, M
Veeraraghavan, M
Year 2007
Conference name Developments in Financial Services: Theory meets Practice
Conference location Melbourne, Australia
Conference dates 24 - 25th September 2007
Proceedings title Proceedings of the 12th Finsia and Melbourne Centre for Financial Studies Banking and Finance Conference 2007
Editor(s) John Unkles F Fin, Kevin Davis SF Fin
Publisher Financial Services Institute of Australasia (Finsia)
Start page 1
End page 33
Total pages 33
Abstract The paper is aimed at examining the inter-relationships between firm size, liquidity, idiosyncratic volatility and their relation to a stock's beta and return performance for Australian equities. Our analysis suggests the existence of confounding effects that may need to be recognised in making meaningful interpretations of the data; specifically, that as well as being potentially explanatory of equity performance, beta, liquidity and idiosyncratic volatility are capable of being the outcome of equity performance behaviour. Over and above achieving a degree of clarification on these issues, the paper's main conclusions are summarised as follows. We find no relationship between beta, firm size, liquidity or idiosyncratic volatility and stock returns for large stocks. However, the smallest capitalised stocks markedly outperform the largest capitalised stocks, and for such small capitalised stocks those with greater idiosyncratic volatility have markedly superior returns.
Keyword(s) Multifactor Model
Beta
Idiosyncratic Volatility
Size Effect
Liquidity
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