Publication: Idiosyncratic volatility and the cross section of expected returns
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KU-Authors
KU Authors
Co-Authors
Cakici, Nusret
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Embargo Status
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Abstract
This paper examines the cross-sectional relation between idiosyncratic volatility and expected stock returns. The results indicate that i) the data frequency used to estimate idiosyncratic volatility, ii) the weighting scheme used to compute average portfolio returns, iii) the breakpoints utilized to sort stocks into quintile portfolios, and iv) using a screen for size, price, and liquidity play critical roles in determining the existence and significance of a relation between idiosyncratic risk and the cross section of expected returns. Portfolio-level analyses based on two different measures of idiosyncratic volatility (estimated using daily and monthly data), three weighting schemes (value-weighted, equal-weighted, inverse volatility-weighted), three breakpoints (CRSP, NYSE, equal market share), and two different samples (NYSE/AMEX/NASDAQ and NYSE) indicate that no robustly significant relation exists between idiosyncratic volatility and expected returns.
Source
Publisher
Cambridge University Press (CUP)
Subject
Business, finance, Economics
Citation
Has Part
Source
Journal of Financial and Quantitative Analysis
Book Series Title
Edition
DOI
10.1017/S002210900000274X