 Disagreement, speculation, and the idiosyncratic volatilityJianqiu Wang, Ke Wu, Jiening Pan and Ying Jiang Journal of Empirical Finance, 2023, vol. 72, issue C, 232-250 Abstract: We propose that speculative trading plays an important role in explaining the idiosyncratic volatility (IVOL) puzzle and its associated empirical patterns in the joint presence of investor disagreement and short-sale constraints. Our analysis shows that: (i) the return spread between high and low IVOL quintile portfolios is closely related to both aggregate and firm-level disagreement, (ii) the common IVOL (CIV) factor is directly correlated with aggregate disagreement, and (iii) such correlation between the IVOL puzzle and disagreement presents mainly among stocks that are more likely short-sale constrained. Overall, we provide a unified mechanism that high aggregate disagreement leads to more firm-level speculative trading, which is consistent with a factor structure in IVOL and positive correlations between stock β, the IVOL puzzle, and trading volume. Keywords: Disagreement; Speculative trading; Learning; Idiosyncratic volatility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:72:y:2023:i:c:p:232-250 DOI: 10.1016/j.jempfin.2023.03.011 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 |
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