Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269998 
Year of Publication: 
2020
Citation: 
[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 8 [Issue:] 1 [Article No.:] 1838686 [Year:] 2020 [Pages:] 1-15
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
In this paper, the role of the reference-dependent preference in the relationship between idiosyncratic volatility and future return was investigated in the Korean stock market from July 1990 to June 2018. The capital gains overhang was used as a reference point for a definition of the loss and gains domain. As a consequence, the negative idiosyncratic volatility-return relationship is driven by unrealized capital losses. In addition, this negative relation disappears in the unrealized capital gains domain, suggesting the important role of the reference-dependent preference in the idiosyncratic volatility puzzle interpretation. These findings are robust to control for several factors, such as market beta, return reversal variable, momentum, and liquidity.
Subjects: 
capital gains overhang
expected idiosyncratic risk
idiosyncratic volatility
Korean stock market
reference-dependent preferences
JEL: 
G10
G11
G40
G41
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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