The impact of unsystematic risk on stock returns in an Emerging Capital Markets (ECM's) country: An empirical study

Abstract

In this study, we aim to introduce behavior of unsystemayic risk and its forecasting ability in prediction of future return in Egyptian Stock Exchange (ESE) as an Emerging Capital market (ECM), over the period of 2006 to 2015. We measure equally weighted unsystemayic volatility by following the Campbell's (2001) Indirect Method, by considering market size and weekly basis. Our results reveal that unsystemayic risk is the biggest component of total volatility and show no trend, although market volatility has a slow decreasing trend in this period. We also find that small size stocks have slightly higher volatility than the big size stocks but both portfolios have similar idiosyncratic risk behavior. Finally, our analyses about the predictive ability of various measures of unsystematic risk provide evidence that unsystematic risk volatility is not a significant predictor for future return in ESE.