Has Idiosyncratic Volatility Increased? Not in Recent Times

Mardy Chiah, Philip Gharghori and Angel Zhong

Critical Finance Review, 2023, vol. 12, issue 1-4, 125-170

Abstract: This study successfully replicates the key findings of Campbell et al. (2001). We document that aggregate idiosyncratic volatility increases over their sample period from 1962 to 1997. In out-of-sample analysis from 1926 to 1962 and 1998 to 2017, we find that idiosyncratic volatility (IV) decreases, suggesting that their finding is sample-specific. We compare their measure of IV with those obtained from models such as the Fama and French (1993) three-factor model and find that they are very similar. The Campbell et al. (2001) volatility measures can only be estimated at the aggregate level. An advantage of asset pricing model-based IVs is that they can be estimated at the stock level. Employing these stock-level IV measures, we examine trends in a variety of IV series and how IV relates to commonly analyzed firm characteristics. In doing so, we provide further insight into IV and its time-series trends.

Keywords: Idiosyncratic volatility; Market volatility; Asset pricing (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000127

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