Expected cross-sectional stock return idiosyncratic volatility and stock delistings

Serguey Khovansky and Oleksandr Zhylyevskyy

Journal of Economic Studies, 2024, vol. 52, issue 7, 1321-1337

Abstract: PurposeWe estimate expected cross-sectional idiosyncratic stock return volatility (expected IVOL), explore its dynamics and attempt to link it to the characteristics related to the real economy.Design/methodology/approachWe estimate expected cross-sectional idiosyncratic stock return volatility at the annual frequency in the setting of an Inter-temporal Capital Asset Pricing Model model by applying a Generalized Method of Moments with a Common Shock.FindingsWe find that the number of stock issues delisted from exchanges have a significant effect on expected IVOL. The discovered relationship is robust to controlling for aggregate financial and economic variables previously found in the literature to contribute to average IVOL.Originality/valueOur empirical findings are supported by a formal model. Firms’ stock delistings are mainly associated with mergers and stock drops, which effect on expected IVOL (across the firms’ surviving rivals) and is explained in the context of Bayesian Cournot-Nash equilibrium.

Keywords: Average idiosyncratic volatility; Stock delistings; Generalized method of moments with a common shock (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-01-2024-0021

DOI: 10.1108/JES-01-2024-0021

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