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Idiosyncratic volatility puzzle exists at the country level

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  • He, Zhongzhi
  • Xue, Wenjun
Abstract
This paper reexamines the idiosyncratic volatility puzzle using 47 stock market indices from 1995 to 2016. We find that country-specific idiosyncratic volatility is significantly and negatively related to subsequent returns in the international markets, confirming the existence of the idiosyncratic volatility puzzle at the country level. Our results show that the positive relationship between idiosyncratic volatility and country-specific index returns documented by Bali and Cakici (2010) and Hueng and Yau (2013) is not robust to sample selections and model misspecifications. We show that the country-level idiosyncratic volatility puzzle consistently exists after controlling for different model specifications and market segmentation in various subsamples.

Suggested Citation

  • He, Zhongzhi & Xue, Wenjun, 2022. "Idiosyncratic volatility puzzle exists at the country level," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822001103
    DOI: 10.1016/j.najef.2022.101765
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    1. Asgar Ali & K. N. Badhani, 2023. "Tail risk, beta anomaly, and demand for lottery: what explains cross-sectional variations in equity returns?," Empirical Economics, Springer, vol. 65(2), pages 775-804, August.

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