A tale of idiosyncratic volatility and illiquidity shocks: Their correlation and effects on stock returns

Yufeng Han, Ou Hu and Zhaodan Huang

International Review of Financial Analysis, 2023, vol. 86, issue C

Abstract: This paper documents that the idiosyncratic volatility shock is not a stand-alone anomaly compared to the illiquidity shock. Our empirical evidence shows that the illiquidity shock Granger-causes idiosyncratic volatility shock and is statistically and economically significant in predicting stock returns. More importantly, it subsumes most of the predictive power of idiosyncratic volatility shock. In addition, we find that it is the illiquidity shock, not idiosyncratic shock, that is significantly affected by earnings surprise and is more consistently related to other information-signaling variables such as changes in analyst dispersion, number of sell-side analyst coverage, and institutional ownership.

Keywords: Idiosyncratic volatility shock; Illiquidity shock; Anomalies; Cross-sectional stock returns (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521923000339
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:finana:v:86:y:2023:i:c:s1057521923000339

DOI: 10.1016/j.irfa.2023.102517

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

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