Investigating the Behavior of Idiosyncratic Volatility

Yexiao Xu, Burton G. Malkiel
2001 Social Science Research Network  
This paper studies the behavior of idiosyncratic volatility for the post war period. Using aggregate idiosyncratic volatility statistics constructed from the Fama and French (1993) three-factor model, we find that the volatility of individual stocks appears to have increased over time. This trend is not solely attributed to the increasing prominence of the NASDAQ market. We go on to suggest that the idiosyncratic volatility of individual stocks is associated with the degree to which their
more » ... o which their shares are owned by financial institutions. Finally, we show that idiosyncratic volatility is also positively related to expected earning growth. Abstract This paper studies the behavior of idiosyncratic volatility for the post war period. Using aggregate idiosyncratic volatility statistics constructed from the Fama and French (1993) three-factor model, we find that the volatility of individual stocks appears to have increased over time. This trend is not solely attributed to the increasing prominence of the NASDAQ market. We go on to suggest that the idiosyncratic volatility of individual stocks is associated with the degree to which their shares are owned by financial institutions. Finally, we show that idiosyncratic volatility is also positively related to expected earning growth.
doi:10.2139/ssrn.283776 fatcat:jcxigizabrfsfg2pcu3jkjccjq