Trend in aggregate idiosyncratic volatility

Kiseok Nam, Shahriar Khaksari and Moonsoo Kang ()

Review of Financial Economics, 2017, vol. 35, issue C, 11-28

Abstract: We suggest that price interaction among stocks is an important determinant of idiosyncratic volatility. We demonstrate that as more (less) stocks are listed in the markets, price interaction among stocks increases (decreases), and hence stocks, on average, become more (less) volatile. Our results show that price interaction has a significant positive effect of idiosyncratic volatility. The results of various robustness checks indicate that the effect of price interaction is still significant to the presence of liquidity, newly listed firms, cash flow variables, business cycle variables, and market volatility. Once the price interaction effect is taken into account, no trend remains in idiosyncratic volatility. We conclude that there is no trend, but a reflection of the positive effect of price interaction on idiosyncratic volatility.

Keywords: Idiosyncratic return volatility; Price interaction; Small firm effect (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1058330016300696
Full text for ScienceDirect subscribers only

Related works:
Journal Article: Trend in aggregate idiosyncratic volatility (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:35:y:2017:i:c:p:11-28

DOI: 10.1016/j.rfe.2016.11.001

Access Statistics for this article

Review of Financial Economics is currently edited by T. K. Mukherjee and G. Whitney

More articles in Review of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().