Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors

Publikation: Working paperForskning

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  • rp14_45

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  • Nektarios Aslanidis, Department of Economics, FCEE, University Rovira Virgili, Spanien
  • Charlotte Christiansen
  • Neophytos Lambertides, Cyprus University of Technology, Cypern
  • Christos S. Savva, Cyprus University of Technology, Cypern
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.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider43
StatusUdgivet - 24 nov. 2014
SerietitelCREATES Research Papers
Nummer2014-45

    Forskningsområder

  • Idiosyncratic volatility puzzle, Macro-finance predictors, Factor analysis, Business cycle

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