Idiosyncratic volatility puzzle: influence of macro-finance factors

Nektarios Aslanidis (), Charlotte Christiansen, Neophytos Lambertides () and Christos Savva ()
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Nektarios Aslanidis: Universitat Rovira i Virgili
Neophytos Lambertides: Cyprus University of Technology

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 2, No 2, 401 pages

Abstract: Abstract We analyze the cross-sectional relation between expected idiosyncratic volatility and stock returns. The expected idiosyncratic volatility is conditioned on macro-finance factors as well as traditional asset pricing factors. The macro-finance factors are constructed from a large set of macroeconomic and financial variables. Our results show that the negative relation between expected idiosyncratic volatility and stock returns reverses to a positive one when accounting for the macro-finance effects. Portfolio analysis shows that the positive relation is economically important. The relation between expected idiosyncratic volatility and returns is not affected by business cycle variations. The empirical results are highly robust.

Keywords: Idiosyncratic volatility puzzle; Macro-finance factors; Business cycle (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors (2015)
Working Paper: Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors (2014)
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DOI: 10.1007/s11156-018-0713-x

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