The five-factor model, stock returns and idiosyncratic volatility: evidence from Sri Lanka

Traditionally, the success of asset pricing models is assessed in absence idiosyncratic volatility, as it believed that role volatility irrelevant. Nevertheless, existing literature shows matters decisions. Hence, this study aims to test performance five-factor model Fama and French (2015) presence volatility. This utilizes a sample 214 companies listed on Colombo Stock Exchange (CSE) except for those under banks, finance, insurance sectors over 163 months from September 2004 March 2018. Nelson’s (1991) Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) are used estimate individual stocks. The empirical findings confirm less successful failed explain stock returns unsystematic risk Sri Lankan context. finding yields striking evidence while casts doubts applicability such factor estimating cost equity firms real world. Although impact well-researched finance literature, there little structured research how affects fills gap by investigating using CSE. should help academia develop more pronounced tackling