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Idiosyncratic Volatility Puzzle: Influence of Macro-Finance Factors
Aslanidis, Nektarios; Christiansen, Charlotte; Lambertides, Neophytos; Savva, Christos S.
Universitat Rovira i Virgili. Departament d'Economia; Universitat Rovira i Virgili. Centre de Recerca en Economia Industrial i Economia Pública
In this paper, we scrutinize the cross-sectional relation between idiosyncratic volatility and stock returns. As a novelty, the idiosyncratic volatility is obtained by conditioning upon macro-finance factors as well as upon traditional asset pricing factors. The macro-finance factors are constructed from a large pool of macroeconomic and financial variables. Cleaning for macro-finance e§ects reverses the puzzling negative relation between returns and idiosyncratic volatility documented previously. Portfolio analysis shows that the effects from macro-finance factors are economically strong. The relation between idiosyncratic volatility and returns does not vary with the NBER business cycles. The empirical results are highly robust. Keywords: Idiosyncratic volatility puzzle; Macro-finance predictors; Factor analysis; Business cycle. JEL Classifications: G12; G14
336 - Finances. Banca. Moneda. Borsa
Mercats financers
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43 p.
Working Paper
Universitat Rovira i Virgili. Departament d'Economia
Documents de treball del Departament d'Economia;2015-05

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