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The International Commonality of Idiosyncratic Variances

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  • Bekaert, Geert
  • Wang, Xue
  • Zhang, Xiaoyan

Abstract

We document strong global commonality in country idiosyncratic return variances across 23 developed markets, which is stronger than international return commonality. The global common factor of idiosyncratic return variances is highly correlated with that of idiosyncratic cash flow variances, and is also significantly related to variables capturing aggregate discount rate variation and the conditional market variance. Furthermore, aggregate idiosyncratic return and cash flow variances are predominantly but not always countercyclical.

Suggested Citation

  • Bekaert, Geert & Wang, Xue & Zhang, Xiaoyan, 2023. "The International Commonality of Idiosyncratic Variances," CEPR Discussion Papers 18230, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:18230
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    File URL: https://cepr.org/publications/DP18230
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    JEL classification:

    • F39 - International Economics - - International Finance - - - Other
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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