Aggregate Idiosyncratic Volatility / Geert Bekaert, Robert J. Hodrick, Xiaoyan Zhang.

Format:

Book

Author/Creator:

Bekaert, Geert.

Contributor:

National Bureau of Economic Research.

Hodrick, Robert J.

Zhang, Xiaoyan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16058.

NBER working paper series no. w16058

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

We examine aggregate idiosyncratic volatility in 23 developed equity markets, measured using various methodologies, and we find no evidence of upward trends when we extend the sample until 2008. Instead, idiosyncratic volatility appears to be well described by a stationary autoregressive process that occasionally switches into a higher-variance regime that has relatively short duration. We also document that idiosyncratic volatility is highly correlated across countries. Finally, we examine the determinants of the time-variation in idiosyncratic volatility. In most specifications, the bulk of idiosyncratic volatility can be explained by a growth opportunity proxy, total (U.S.) market volatility, and in most but not all specifications, the variance premium, a business cycle sensitive risk indicator.

Notes:

Print version record

June 2010.