Robert D. Brooks, Amalia Di Iorio, Robert W. Faff, Tim Fry and Yovina Joymungul
The purpose of this paper is to provide some insights into the exchange rate exposure of Australian stock returns.
Abstract
Purpose
The purpose of this paper is to provide some insights into the exchange rate exposure of Australian stock returns.
Design/methodology/approach
Using a dynamic econometric approach that allows for both asymmetry and time‐varying risk exposures in both the exchange rate variable and the market variable, a large sample of Australian firms were tested over the period of January 2001 and December 2005. The data were analysed using three different classification methods, forming portfolios according to industry sector, size deciles, and censoring deciles.
Findings
Although the evidence of exchange rate exposure is limited across the sample of industries, the following were found: a time‐varying asymmetric effect primarily in the utilities sector, time‐varying exposure in the materials and energy sectors, and an asymmetric effect in the technology sector. Further, some time‐varying asymmetric exchange rate exposure was found across most size and censoring deciles and also substantial evidence of a positive asymmetric effect in the market beta across all three classification methods.
Originality/value
This approach varies from previous studies in this area that only allow for asymmetry and time variation in exchange rate exposures. The paper also examines the Australian stock market, a market which has not been extensively tested in this area of empirical research.
Details
Keywords
Bin Liu, Amalia Di Iorio and Ashton De Silva
This paper aims to investigate whether idiosyncratic volatility is priced in returns of equity funds while controlling for fund size and return momentum.
Abstract
Purpose
This paper aims to investigate whether idiosyncratic volatility is priced in returns of equity funds while controlling for fund size and return momentum.
Design/methodology/approach
Following Fama and French (1993), an idiosyncratic volatility mimicking factor and a fund-size factor are constructed. The pricing ability of this idiosyncratic volatility mimicking factor is investigated in the context of Carhart (1997).
Findings
Idiosyncratic volatility is an important pricing factor even when controlling for fund size and momentum. In addition, idiosyncratic volatility is strongly and positively associated with the momentum effect. Further, when controlling for the association between the momentum effect and idiosyncratic volatility, the explanatory power of the momentum factor almost disappears, which suggests the pricing of idiosyncratic volatility mediates momentum and returns.
Originality/value
These findings imply that both the idiosyncratic volatility factor and the fund-size factor should not be ignored by fund managers when evaluating the performance of the equity funds.
Details
Keywords
– This paper aims to examine whether idiosyncratic volatility and other asset pricing factors predict growth rates of the ten Australian economic indicators.
Abstract
Purpose
This paper aims to examine whether idiosyncratic volatility and other asset pricing factors predict growth rates of the ten Australian economic indicators.
Design/methodology/approach
The authors use the Liew and Vassalou (2000) model augmented with an idiosyncratic volatility factor to investigate the issue.
Findings
Using regression analysis, the authors find that the asset pricing factors can be used to predict the growth rates for eight out of the ten economic indicators. Moreover, using portfolio performance analysis, the authors find that high returns of size factor and a book-to-market factor portfolios precede periods of good macroeconomic states, whereas high returns of HIMLI portfolios precede periods of bad macroeconomic states.
Originality/value
To the authors’ knowledge, the relationship between idiosyncratic volatility and Australian economic growth has not been investigated explicitly in the literature.