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Intangible factor and idiosyncratic volatility puzzles

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  • Li, Xing
  • Hou, Keqiang
  • Zhang, Chao

Abstract

In this paper, we explore whether intangible capital (IC) can help explain idiosyncratic volatility puzzles. The underlying assumption is that firms produce and accumulate IC as part of their normal operations. Investments in IC can either raise a company's future ability to produce or lower its cost of production. The applied model finds empirical support for the hypothesis that IC can help explain idiosyncratic volatility puzzles, especially for firms with higher IC-to-total asset ratios. This paper contributes to existing literature on idiosyncratic volatility puzzles from an IC investment perspective and provides implications for IC on stock markets.

Suggested Citation

  • Li, Xing & Hou, Keqiang & Zhang, Chao, 2020. "Intangible factor and idiosyncratic volatility puzzles," Finance Research Letters, Elsevier, vol. 34(C).
    • Handle: RePEc:eee:finlet:v:34:y:2020:i:c:s154461231930875x
    DOI: 10.1016/j.frl.2019.101403
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    References listed on IDEAS

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    More about this item

    Keywords

    Intangible capital; Idiosyncratic volatility puzzle; DSGE model; Fama–Macbeth regression;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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