Economic uncertainty: A key factor to understanding idiosyncratic volatility puzzle

Yong Li, Yuandong Mu and Tianyu Qin

Finance Research Letters, 2021, vol. 42, issue C

Abstract: In this paper, we show that economic uncertainty is important to understanding the idiosyncratic volatility (IVOL) puzzle. We find that idiosyncratic volatility carries information related to the economic uncertainty. Uncertainty-averse investors potentially contribute to the IVOL puzzle. Negative IVOL strategy returns only show up after economic uncertainty raise. No robust and significant IVOL puzzle exists once we control stock exposure to economic uncertainty.

Keywords: Economic uncertainty; IVOL puzzle; Asset pricing; Anomalies (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:42:y:2021:i:c:s1544612321000192

DOI: 10.1016/j.frl.2021.101938

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