What Can We Learn from a Cross-Section of Returns? An Investigation of Idiosyncratic Volatility Range
Serguey Khovansky and
Oleksandr Zhylyevskyy ()
Staff General Research Papers Archive from Iowa State University, Department of Economics
We investigate empirical properties of idiosyncratic volatility using cross-sections of stock returns in the standard framework of geometric Brownian motion price dynamics. Knowledge of the sign and magnitude of idiosyncratic volatility characteristics may help us better understand the role of idiosyncratic risk in asset pricing. This knowledge may also help practitioners devise innovative investment strategies to exploit profitable investment opportunities that have not been eliminated because of transaction costs, investment indivisibilities, incomplete information, or the presence of other non-diversifiable factors and market rigidities.
Keywords: Common shock; Systematic risk; Cross-sectional returns; Idiosyncratic volatility; Generalized method of moments (search for similar items in EconPapers)
JEL-codes: C21 C51 G10 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:32769
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