Advanced Search
MyIDEAS: Login

Aggregate Idiosyncratic Volatility

Contents:

Author Info

  • Geert Bekaert
  • Robert J. Hodrick
  • Xiaoyan Zhang

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w16058.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16058.

as in new window
Length:
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:nbr:nberwo:16058

Note: AP IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  2. Harvey, Campbell R., 1988. "The real term structure and consumption growth," Journal of Financial Economics, Elsevier, vol. 22(2), pages 305-333, December.
  3. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
  4. James A. Bennett, 2003. "Greener Pastures and the Impact of Dynamic Institutional Preferences," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1203-1238.
  5. Tim Bollerslev & Tzuo Hao & George Tauchen, 2008. "Expected Stock Returns and Variance Risk Premia," CREATES Research Papers 2008-48, School of Economics and Management, University of Aarhus.
  6. Lieven Baele, 2010. "The Determinants of Stock and Bond Return Comovements," Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2374-2428, June.
  7. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  8. Bartram, Sohnke M. & Brown, Gregory & Stulz, Rene M., 2009. "Why Do Foreign Firms Have Less Idiosyncratic Risk Than U.S. Firms?," Working Paper Series 2009-5, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  9. Timmermann, Allan, 2000. "Moments of Markov switching models," Journal of Econometrics, Elsevier, vol. 96(1), pages 75-111, May.
  10. Chun, Hyunbae & Kim, Jung-Wook & Morck, Randall & Yeung, Bernard, 2008. "Creative destruction and firm-specific performance heterogeneity," Journal of Financial Economics, Elsevier, vol. 89(1), pages 109-135, July.
  11. Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May.
  12. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, 02.
  13. Yexiao Xu & Burton G. Malkiel, 2003. "Investigating the Behavior of Idiosyncratic Volatility," The Journal of Business, University of Chicago Press, vol. 76(4), pages 613-644, October.
  14. Michael W. Brandt & Alon Brav & John R. Graham & Alok Kumar, 2010. "The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes?," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 863-899, February.
  15. Foucault, Thierry & Themar, David & Sraer, David, 2008. "Individual investors and volatility," Les Cahiers de Recherche 899, HEC Paris.
  16. Diego A. Comin & Thomas Philippon, 2006. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 167-228 National Bureau of Economic Research, Inc.
  17. Helle Bunzel & Timothy Vogelsang, 2003. "Powerful Trend Function Tests That are Robust to Strong Serial Correlation with an Application to the Prebisch Singer Hypothesis," Econometrics 0304002, EconWPA.
  18. Comin, D. & Mulani, S., 2003. "Diverging Trends in Macro and Micro Volatility: Facts," Working Papers 03-08, C.V. Starr Center for Applied Economics, New York University.
  19. Fink, Jason & Fink, Kristin E. & Grullon, Gustavo & Weston, James P., 2010. "What Drove the Increase in Idiosyncratic Volatility during the Internet Boom?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(05), pages 1253-1278, October.
  20. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross-Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, 02.
  21. Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
  22. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
  23. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
  24. Charles Cao & Timothy Simin & Jing Zhao, 2008. "Can Growth Options Explain the Trend in Idiosyncratic Risk?," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2599-2633, November.
  25. Jos�-Miguel Gaspar, 2006. "Idiosyncratic Volatility and Product Market Competition," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3125-3152, November.
  26. Henkel, Sam James & Martin, J. Spencer & Nardari, Federico, 2011. "Time-varying short-horizon predictability," Journal of Financial Economics, Elsevier, vol. 99(3), pages 560-580, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Andre Lucas & Bernd Schwaab & Xin Zhang, 2013. "Measuring Credit Risk in a Large Banking System: Econometric Modeling and Empirics," Tinbergen Institute Discussion Papers 13-063/IV/DSF56, Tinbergen Institute, revised 30 May 2013.
  2. Söhnke M. Bartram & Gregory Brown & René M. Stulz, 2012. "Why Are U.S. Stocks More Volatile?," Journal of Finance, American Finance Association, vol. 67(4), pages 1329-1370, 08.
  3. Anginer, Deniz & Demirguc-Kunt, Asli, 2011. "Has the global banking system become more fragile over time ?," Policy Research Working Paper Series 5849, The World Bank.
  4. John Cotter & Niall O'Sullivan & Francesco Rossi, 2014. "The Conditional Pricing of Systematic and Idiosyncratic Risk in the UK Equity Market," Working Papers 201403, Geary Institute, University College Dublin.
  5. Miralles-Marcelo, José Luis & Miralles-Quirós, María del Mar & Miralles-Quirós, José Luis, 2012. "Asset pricing with idiosyncratic risk: The Spanish case," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 261-271.
  6. Vidal-García, Javier & Vidal, Marta, 2014. "Seasonality and idiosyncratic risk in mutual fund performance," European Journal of Operational Research, Elsevier, vol. 233(3), pages 613-624.
  7. Nartea, Gilbert V. & Wu, Ji & Liu, Zhentao, 2013. "Does idiosyncratic volatility matter in emerging markets? Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 137-160.
  8. Nartea, Gilbert V. & Wu, Ji, 2013. "Is there a volatility effect in the Hong Kong stock market?," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 119-135.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16058. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.