Aggregate Idiosyncratic Volatility

Geert Bekaert, Robert Hodrick () and Xiaoyan Zhang ()

No 16058, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 until 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.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2010-06
Note: AP IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Bekaert, Geert & Hodrick, Robert J. & Zhang, Xiaoyan, 2012. "Aggregate Idiosyncratic Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(06), pages 1155-1185, December.

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Journal Article: Aggregate Idiosyncratic Volatility (2012)
Working Paper: Aggregate Idiosyncratic Volatility (2010)
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