The risk-return trade-off in a liberalized emerging stock market: evidence from Vietnam

Abstract

We empirically examine the risk-return trade-off in a liberalized emerging stock market: Vietnam during the period 2007–2014. We find that (1) neither realized idiosyncratic volatility nor conditional idiosyncratic volatility has been priced; (2) rational multifactor models could well explain the stock portfolio returns; (3) there is a flat trend for equal-weighted idiosyncratic volatility (IVOL), but a downward trend for market volatility. Our results indicate that the idiosyncratic risk plays an unimportant role in pricing stocks and that the systematic risks still dominate asset returns in emerging stock markets. Results imply that Vietnamese investors can get increased benefit from portfolio diversification.