Cross-Sectional Mispricing and Idiosyncratic Volatility : A New Approach

Decomposing Cross-Sectional Volatility

Price Momentum and Idiosyncratic Volatility

We show that stocks with higher idiosyncratic volatility display greater price momentum; a relation which is economically large, statistically significant, and robust. Stocks with higher idiosyncratic volatility also experience quicker and larger reversals. These findings are consistent with the view that momentum profits are attributable to underreaction to firm-specific information. Our findi...

Idiosyncratic risk and volatility bounds

This paper uses Hansen and Jagannathan’s (1991) volatility bounds to evaluate models with idiosyncratic consumption risk. I show that idiosyncratic risk does not change the volatility bounds at all when consumers have CRRA preferences and the distribution of the idiosyncratic shock is independent of the aggregate state. Following Mankiw (1986), I then show that idiosyncratic risk can help to en...

AGGREGATE IDIOSYNCRATIC VOLATILITY Geert

We examine aggregate idiosyncratic volatility in 23 developed equity markets, measured using various methodologies, and we find no evidence of upward trends. 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 volatili...

Dissecting the Idiosyncratic Volatility Anomaly

The finding that stocks with high idiosyncratic volatility tend to have low future returns, as first documented in Ang, Hodrick, Xing, and Zhang (2006), has been dubbed as the idiosyncratic volatility anomaly in the finance literature. Several studies have since explored various potential explanations of the anomalous relation between idiosyncratic volatility and stock returns. Some studies eve...