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The Idiosyncratic Volatility Puzzle: Further Evidence from the European Equity Market

Wessman, Johan and Rostedt, Erik (2011)
Department of Business Administration
Abstract
We do not find clear evidence of an idiosyncratic volatility puzzle on the three markets. Our models are inconclusive with a negative risk premium for the time series portfolio based regression model while the premium is positive in the panel data model. However, the parameter estimates are insignificant, therefore we accept the predictions of modern portfolio theories and conclude that idiosyncratic risk is not priced. We cannot find support that the “idiosyncratic volatility – future return”-relation is different over bear and bull markets. Neither do market volatility shocks seem to explain the difference in return between stocks with high and low idiosyncratic volatility
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author
Wessman, Johan and Rostedt, Erik
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Market anomaly, idiosyncratic volatility, asymmetric volatility, asset pricing, panel data, Management of enterprises, Företagsledning, management
language
Swedish
id
1766250
date added to LUP
2011-01-14
date last changed
2012-04-02 18:36:04
@misc{1766250,
  abstract     = {We do not find clear evidence of an idiosyncratic volatility puzzle on the three markets. Our models are inconclusive with a negative risk premium for the time series portfolio based regression model while the premium is positive in the panel data model. However, the parameter estimates are insignificant, therefore we accept the predictions of modern portfolio theories and conclude that idiosyncratic risk is not priced. We cannot find support that the “idiosyncratic volatility – future return”-relation is different over bear and bull markets. Neither do market volatility shocks seem to explain the difference in return between stocks with high and low idiosyncratic volatility},
  author       = {Wessman, Johan and Rostedt, Erik},
  keyword      = {Market anomaly,idiosyncratic volatility,asymmetric volatility,asset pricing,panel data,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {The Idiosyncratic Volatility Puzzle: Further Evidence from the European Equity Market},
  year         = {2011},
}