The International Commonality of Idiosyncratic Variances

Geert Bekaert (), Xue Wang () and Xiaoyan Zhang ()
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Geert Bekaert: Finance Division, Columbia Business School, Columbia University, New York, New York 10027; and Centre for Economic Policy Research (CEPR), London EC1V 0DX, United Kingdom
Xue Wang: PBC School of Finance, Tsinghua University, Beijing 100083, P.R. China
Xiaoyan Zhang: PBC School of Finance, Tsinghua University, Beijing 100083, P.R. China

Management Science, 2025, vol. 71, issue 3, 2216-2244

Abstract: We document strong global commonality in country idiosyncratic return variances across 23 developed markets, which is stronger than international return commonality. The global common factor of idiosyncratic return variances is highly correlated with that of idiosyncratic cash flow variances and is also significantly related to variables capturing aggregate discount rate variation and the conditional market variance. Furthermore, aggregate idiosyncratic return and cash flow variances are mostly but not always countercyclical.

Keywords: return idiosyncratic variance; cash flow idiosyncratic variance; global commonality; countercyclical; economic uncertainty (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:3:p:2216-2244

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