Abstract
This study successfully replicates the key findings of Campbell et al. (2001). We document that aggregate idiosyncratic volatility increases over their sample period from 1962 to 1997. In out-of-sample analysis from 1926 to 1962 and 1998 to 2017, we find that idiosyncratic volatility (IV) decreases, suggesting that their finding is sample-specific. We compare their measure of IV with those obtained from models such as the Fama and French (1993) three-factor model and find that they are very similar. The Campbell et al. (2001) volatility measures can only be estimated at the aggregate level. An advantage of asset pricing model-based IVs is that they can be estimated at the stock level. Employing these stock-level IV measures, we examine trends in a variety of IV series and how IV relates to commonly analyzed firm characteristics. In doing so, we provide further insight into IV and its time-series trends.
Original language | English |
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Pages (from-to) | 125-170 |
Number of pages | 46 |
Journal | Critical Finance Review |
Volume | 12 |
Issue number | 1-4 |
DOIs | |
Publication status | Published - 2023 |
Keywords
- Idiosyncratic volatility
- Market volatility
- Asset pricing