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What Can We Learn from a Cross-Section of Returns? An Investigation of Idiosyncratic Volatility Range

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  • Serguey Khovansky
  • Zhylyevskyy, Oleksandr
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    Abstract

    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.

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    File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p12769-2011-03-05.pdf
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    Bibliographic Info

    Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32769.

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    Date of creation: 05 Mar 2011
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    Handle: RePEc:isu:genres:32769

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    Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
    Phone: +1 515.294.6741
    Fax: +1 515.294.0221
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    Web page: http://www.econ.iastate.edu
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    Related research

    Keywords: Common shock; Systematic risk; Cross-sectional returns; Idiosyncratic volatility; Generalized method of moments;

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