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Investigating the Behavior of Idiosyncratic Volatility

Author

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  • Yexiao Xu

    (University of Texas at Dallas)

  • Burton G. Malkiel

    (Princeton University)

Abstract

This article studies the behavior of idiosyncratic volatility for the postWorld War II period. Using aggregate idiosyncratic volatility statistics constructed from the Fama and French (1993) three-factor model, we find that the volatility of individual stocks appears to have increased over time. This trend is not solely attributed to the increasing prominence of the NASDAQ market. We go on to suggest that the idiosyncratic volatility of individual stocks is associated with the degree to which their shares are owned by financial institutions. Finally, we show that idiosyncratic volatility is also positively related to expected earnings growth.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:4:p:613-644
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    File URL: http://dx.doi.org/10.1086/377033
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