Proceedings of 8th Asia-Pacific Business Research Conference
9 - 10 February 2015, Hotel Istana, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-71-9
Firm Specific Determinants and Idiosyncratic Risk:
Evidence from India
Jyoti Kumari
This study investigates whether the firm specific characteristics namely size, book
equity to market equity (BE/ME), turnover, earnings per share and price earnings
(P/E) ratio have any significant role in explaining the dynamics of idiosyncratic
volatility across the non-financial firms traded in Indian capital market. The period for
the study stretches over the September 1996 to August 2013 (204 months).
Employing the four factor model of Carhart (1997) and Nelson’s (1991) conditional
exponential GARCH model, the monthly idiosyncratic volatility is extracted. Further,
the relationship between the volatility of individual securities and firm specific
characteristics are analyzed employing the panel data regression. The findings
suggest that the firm characteristics namely size, earnings, P/E ratio, and turn over
significantly determine the idiosyncratic volatility in Indian equity market.
Key words: Idiosyncratic volatility, firm characteristics, dynamic panel analysis,
conditional heteroskedastic models
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Jyoti Kumari, Department of Humanities and Social Science (HSS), Indian Institute of Technology
(IIT) Kharagpur, Kharagpur – 721302 West Bengal, India, Email: jkumari@iitkgp.ac.in,
Jyoti.ind@gmail.com, Telephone: +91 7407651483