The Effect of Companies' Idiosyncratic Risk and Information Transparency on Stock Returns

Risk is an eternal topic in financial market research. Information asymmetry problem hinders the efficiency level of the market for a long time. Hence, this paper reports the results of an empirical study designed to test the effect of companies' idiosyncratic risk and information transparency on stock return on Chinese A share market. Based on theoretical foundations and existing research, we put forwards three hypotheses and build four regression models to verify the hypotheses. We get the results which are consistent with our hypotheses. Then we do some robustness tests. Finally we get the following conclusion: positive correlation between idiosyncratic risk and stock return; positive correlation between information transparency and stock return; negative correlation between cross term and stock return.