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Idiosyncratic volatility puzzle : influence of macro-finance factors

Aslanidis, Nektarios; Christiansen, Charlotte LU ; Lambertides, Neophytos and Savva, Christos S. (2018) In Review of Quantitative Finance and Accounting
Abstract

We analyze the cross-sectional relation between expected idiosyncratic volatility and stock returns. The expected idiosyncratic volatility is conditioned on macro-finance factors as well as traditional asset pricing factors. The macro-finance factors are constructed from a large set of macroeconomic and financial variables. Our results show that the negative relation between expected idiosyncratic volatility and stock returns reverses to a positive one when accounting for the macro-finance effects. Portfolio analysis shows that the positive relation is economically important. The relation between expected idiosyncratic volatility and returns is not affected by business cycle variations. The empirical results are highly robust.

Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
epub
subject
keywords
Business cycle, Idiosyncratic volatility puzzle, Macro-finance factors
in
Review of Quantitative Finance and Accounting
pages
21 pages
publisher
Kluwer
external identifiers
  • scopus:85042586053
ISSN
0924-865X
DOI
10.1007/s11156-018-0713-x
language
English
LU publication?
yes
id
dea83e6d-5819-4890-ac71-9f4a83cf83ba
date added to LUP
2018-03-08 11:01:04
date last changed
2018-05-29 11:00:10
@article{dea83e6d-5819-4890-ac71-9f4a83cf83ba,
  abstract     = {<p>We analyze the cross-sectional relation between expected idiosyncratic volatility and stock returns. The expected idiosyncratic volatility is conditioned on macro-finance factors as well as traditional asset pricing factors. The macro-finance factors are constructed from a large set of macroeconomic and financial variables. Our results show that the negative relation between expected idiosyncratic volatility and stock returns reverses to a positive one when accounting for the macro-finance effects. Portfolio analysis shows that the positive relation is economically important. The relation between expected idiosyncratic volatility and returns is not affected by business cycle variations. The empirical results are highly robust.</p>},
  author       = {Aslanidis, Nektarios and Christiansen, Charlotte and Lambertides, Neophytos and Savva, Christos S.},
  issn         = {0924-865X},
  keyword      = {Business cycle,Idiosyncratic volatility puzzle,Macro-finance factors},
  language     = {eng},
  month        = {02},
  pages        = {21},
  publisher    = {Kluwer},
  series       = {Review of Quantitative Finance and Accounting},
  title        = {Idiosyncratic volatility puzzle : influence of macro-finance factors},
  url          = {http://dx.doi.org/10.1007/s11156-018-0713-x},
  year         = {2018},
}