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The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes?*

* This paper is a replication of an original study

Author

Listed:
  • Michael W. Brandt
  • Alon Brav
  • John R. Graham
  • Alok Kumar

Abstract

Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962--1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and "attention-grabbing" events are consistent with a retail trading effect. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Michael W. Brandt & Alon Brav & John R. Graham & Alok Kumar, 2010. "The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes?," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 863-899, February.
    • Handle: RePEc:oup:rfinst:v:23:y:2010:i:2:p:863-899
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    File URL: http://hdl.handle.net/10.1093/rfs/hhp087
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    Replication

    This item is a replication of:
  • John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 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, February.

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    1. The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes? (Review of Financial Studies 2010) in ReplicationWiki

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