Relationship between Extreme Idiosyncratic Returns and Expected Returns in the Korean Stock Market

This study estimates IMAX and IMIN to measure lottery hazard stocks, investigates how investors’ reactions these extreme returns affect the cross-section of stock returns. We show that is negatively related future measures stocks. Furthermore, we also has a negative relationship with returns, contrary theory, suggesting existence anomaly in Korean market. anomaly, which caused by under-reaction significant even after controlling various variables explaining cross-sectional characteristics lasts for at least 24 months. Moreover, exists significantly factors under-reaction, such as investor attention, information uncertainty, limits arbitrage. However, weakens market demonstrates more efficiency transparency.