Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors

Nektarios Aslanidis (), Charlotte Christiansen, Neophytos Lambertides () and Christos Savva ()
Additional contact information
Nektarios Aslanidis: Department of Economics, FCEE, University Rovira Virgili, Postal: 43204 Reus, Catalonia, Spain
Neophytos Lambertides: Cyprus University of Technology, Postal: Department of Commerce, Finance and Shipping, Cyprus University of Technology, P.O Box 50329, 3603 Limassol, Cyprus

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper, we scrutinize the cross-sectional relation between idiosyncratic volatility and stock returns. As a novelty, the idiosyncratic volatility is obtained by conditioning upon macro-finance factors as well as upon traditional asset pricing factors. The macro-finance factors are constructed from a large pool of macroeconomic and financial variables. Cleaning for macro-finance effects reverses the puzzling negative relation between returns and idiosyncratic volatility documented previously. Portfolio analysis shows that the effects from macro-finance factors are economically strong. The relation between idiosyncratic volatility and returns does not vary with the NBER business cycles. The empirical results are highly robust

Keywords: Idiosyncratic volatility puzzle; Macro-finance predictors; Factor analysis; Business cycle (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 41
Date: 2014-11-20
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.econ.au.dk/repec/creates/rp/14/rp14_45.pdf (application/pdf)

Related works:
Journal Article: Idiosyncratic volatility puzzle: influence of macro-finance factors (2019)
Working Paper: Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors (2015)
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:aah:create:2014-45

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().