Types of Shares and Idiosyncratic Risk

Abstract

This study seeks to examine whether being listed as a particular type of share (H share, red-chip stock, Taiwan-based stock, or Hong Kong local stock) on the main board of the Hong Kong Exchange will affect the idiosyncratic risks and market risks. The findings are as follows: (1) different political connections mainly affect idiosyncratic risk, (2) the hypothesis of big size with high market risk is supported, (3) the idiosyncratic risks of all the companies in each category taken by category are negatively correlated with expected short-run returns. These results mean that investors should hold the stocks with previous low idiosyncratic risk to earn high expected returns.

Keywords:

• H share
• idiosyncratic risk
• red chips
• TGARCH models
• types of shares