The paper examines the behaviour of idiosyncratic volatility in the Vietnamese stock market from 2007-2012.
Using daily and monthly data, we find that idiosyncratic volatility cannot predict one-month ahead stock returns
in the stock market. Also, there is a positive trend in the average value-weighted idiosyncratic volatility, while
the market volatility exhibits negative trend, implying an increasing benefit of the diversification in the
Vietnamese stock market. Our findings reveal that investors should not expect to be compensated for bearing
idiosyncratic risk when investing in the Vietnamese stock market and cost of capital estimates would be more
accurate using the FF3-factor model rather than CAPM. These results have not been documented in the
literature on the emerging stock market of Vietnam, benefiting domestic as well as international investors in the
stock market.