Idiosyncratic volatility puzzle: The role of assets' interconnections

Roberto Calogero Panzica

No 228, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: The paper investigates the determinants of the idiosyncratic volatility puzzle by allowing linkages across asset returns. The first contribution of the paper is to show that portfolios sorted by increasing indegree computed on the network based on Granger causality test have lower expected returns, not related to idiosyncratic volatility. Secondly, empirical evidence indicates that stocks with higher idiosyncratic volatility have the lower exposition on the indegree risk factor.

Keywords: Idiosyncratic volatility puzzle; Networks; Expected Returns; Granger Causality (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:228

DOI: 10.2139/ssrn.3240484

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