Idiosyncratic volatility, stock market volatility, and expected stock returns
Hui Guo () and
No 2003-028, Working Papers from Federal Reserve Bank of St. Louis
We find that the value-weighted idiosyncratic stock volatility and aggregate stock market volatility jointly exhibit strong predictive power for excess stock market returns. The stock market risk-return relation is found to be positive, as stipulated by the CAPM; however, idiosyncratic volatility is negatively related to future stock market returns. Also, idiosyncratic volatility appears to be a pervasive macrovariable, and its forecasting abilities are very similar to those of the consumption-wealth ratio proposed by Lettau and Ludvigson (2001).
Keywords: Stock market; Asset pricing (search for similar items in EconPapers)
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Published in Journal of Business and Economic Statistics, January 2006, 24(1), pp. 43-56
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Journal Article: Idiosyncratic Volatility, Stock Market Volatility, and Expected Stock Returns (2006)
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