Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors

Nektarios Aslanidis, Charlotte Christiansen, Neophytos Lambertides and Christos Savva ()

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: In this paper, we scrutinize the cross-sectional relation between idiosyncratic volatility and stock returns. As a novelty, the idiosyncratic volatility is obtained by conditioning upon macro-finance factors as well as upon traditional asset pricing factors. The macro-finance factors are constructed from a large pool of macroeconomic and financial variables. Cleaning for macro-finance e§ects reverses the puzzling negative relation between returns and idiosyncratic volatility documented previously. Portfolio analysis shows that the effects from macro-finance factors are economically strong. The relation between idiosyncratic volatility and returns does not vary with the NBER business cycles. The empirical results are highly robust. Keywords: Idiosyncratic volatility puzzle; Macro-finance predictors; Factor analysis; Business cycle. JEL Classifications: G12; G14

Keywords: Mercats financers; 336 - Finances. Banca. Moneda. Borsa (search for similar items in EconPapers)
Date: 2015
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http://hdl.handle.net/2072/246968

Related works:
Journal Article: Idiosyncratic volatility puzzle: influence of macro-finance factors (2019)
Working Paper: Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:urv:wpaper:2072/246968

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