The dynamic relation between returns and idiosyncratic volatility

  • Jiang X
  • Lee B
  • 27

    Readers

    Mendeley users who have this article in their library.
  • 35

    Citations

    Citations of this article.

Abstract

We claim that regressing excess returns on one-lagged volatility provides only a limited picture of the dynamic effect of idiosyncratic risk, which tends to be persistent over time. By correcting for the serial correlation in idiosyncratic volatility, we find that idiosyncratic volatility has a significant positive effect. This finding seems robust for various firm size portfolios, sample periods, and measures of idiosyncratic risk. Our findings suggest stock markets mis-price idiosyncratic risk. There may be some measurement problems with idiosyncratic risk that could be related to nondiversiflable risk.

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Authors

  • Xiaoquan Jiang

  • Bong Soo Lee

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free