Aggregate Idiosyncratic Volatility
Geert Bekaert (),
Robert Hodrick () and
No 8149, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We examine aggregate idiosyncratic volatility in 23 developed equity markets, measured using various methodologies, and we find no evidence of upward trends when we extend the sample till 2008. Instead, idiosyncratic volatility appears to be well described by a stationary autoregressive process that occasionally switches into a higher-variance regime that has relatively short duration. We also document that idiosyncratic volatility is highly correlated across countries. Finally, we examine the determinants of the time-variation in idiosyncratic volatility. In most specifications, the bulk of idiosyncratic volatility can be explained by a growth opportunity proxy, total (U.S.) market volatility, and in most but not all specifications, the variance premium, a business cycle sensitive risk indicator. Our results have important implications for studies of portfolio diversification, return volatility and contagion.
Keywords: contagion; diversification; growth opportunities; idiosyncratic volatility; regime switching model; return correlation; trend test; variance premium; volatility dynamics (search for similar items in EconPapers)
JEL-codes: C52 G11 G12 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
Journal Article: Aggregate Idiosyncratic Volatility (2012)
Working Paper: Aggregate Idiosyncratic Volatility (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8149
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=8149
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().