Global investigation on the country-level idiosyncratic volatility and its determinants

Mustafa Onur Caglayan, Wenjun Xue and Liwen Zhang

Journal of Empirical Finance, 2020, vol. 55, issue C, 143-160

Abstract: Adapting the Fama–French three-factor model to a global context, this paper investigates idiosyncratic volatility as a measure of country-specific risk, and explores its determinants by using the equity and risk data of 47 developed and emerging countries during the period 1995–2016. We find the stock market turnover to have a positive and significant impact on the country-level idiosyncratic volatility, while information disclosure and investor uncertainty avoidance degree are negatively associated with country-level idiosyncratic risk. Moreover, improvements in economic, financial, and political risks, as measured by GDP growth, FX stability, foreign debt health, and non-corruption degree decrease the country-level idiosyncratic volatility significantly. Among all sets of market structure, investor preference, and economic, financial, and political risk variables considered, we find financial risk factors, FX stability and foreign debt health, to have the highest explanatory power over the cross-sectional differences in country-level idiosyncratic risk.

Keywords: Idiosyncratic volatility; Country Risk; Quantile GARCH model (search for similar items in EconPapers)
JEL-codes: C10 G12 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539819301021
Full text for ScienceDirect subscribers only

Related works:
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:empfin:v:55:y:2020:i:c:p:143-160

DOI: 10.1016/j.jempfin.2019.11.006

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().