Is idiosyncratic volatility priced in Bangladesh stock market?

This paper uses three methods of idiosyncratic volatility to find whether or not firm-specific risk can explain returns of individual stock and portfolio returns in the Dhaka Stock Exchange (DSE), the larger of the two stock exchanges in Bangladesh. Results show that investors fail to diversify their portfolios and firm-specific risk cannot be totally driven away. Furthermore, we also find significant negative relationships between idiosyncratic volatility and returns for both portfolios and individual stocks. Firm characteristics such as volatility and size do not change the results. The study concludes that firm-specific volatility should be considered in the valuation models for the stocks listed in the DSE.