The Idiosyncratic Volatility Puzzle – Anomaly or Data Mining?

Artikel

In this study, I investigate the robustness of the idiosyncratic volatility puzzle to the configuration of the research design. Using the regression- as well as the portfolio-based concept, I start with the replication of the idiosyncratic volatility puzzle approving the findings of Ang et al. (2006). However, when idiosyncratic volatility is estimated from monthly data and a time window spanning 1 or 5 years, the puzzle vanishes, regardless of the research method employed. Similar result hold if only stocks with a market capitalization above the cross-sectional median or those with a price higher than 10$ are used. Independent of the weighting scheme, the puzzle is also absent in the regression-based context when the risk premia are estimated by generalized least squares weighting returns by the inverse of their variance estimates. The same finding is derived in the portfolio-based context by extending the holding period to 12 months or controlling for the past month maximum daily return.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Junior Management Science (JUMS) ; ISSN: 2942-1861 ; Volume: 7 ; Year: 2022 ; Issue: 4 ; Pages: 945-985

Classification and Topics

• Classification: Management
• Subject: Idiosyncratic Volatility ; Cross-section of stock returns ; Predictability ; Risk Premium ; Robustness ; Idiosyncratic Volatility ; Cross-section of stock returns ; Predictability ; Risk Premium ; Robustness

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): Kowalke, Leon
• Event: Veröffentlichung
• (who): Junior Management Science e. V.
• (where): Planegg
• (when): 2022

Further information

• DOI: doi:10.5282/jums/v7i4pp945-985
• Last update: 10.03.2025, 11:44 AM CET