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- Title
The Dynamic Relation Between Returns and Idiosyncratic Volatility.
- 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 nondiversifiable risk.
- Subjects
INVESTORS; STOCKS (Finance); RATE of return; MARKET volatility; RISK assessment; FINANCIAL markets; STOCK exchanges
- Publication
Financial Management (Wiley-Blackwell), 2006, Vol 35, Issue 2, p43
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2006.tb00141.x