Investigating the Behavior of Idiosyncratic Volatility
University of Texas at Dallas - School of Management
Burton G. Malkiel
Princeton University - Bendheim Center for Finance; National Bureau of Economic Research (NBER)
September 3, 2001
This paper studies the behavior of idiosyncratic volatility for the post war period. Using aggregate idiosyncratic volatility statistics constructed from the Fama and French (1993) three-factor model, we find that the volatility of individual stocks appears to have increased over time. This trend is not solely attributed to the increasing prominence of the NASDAQ market. We go on to suggest that the idiosyncratic volatility of individual stocks is associated with the degree to which their shares are owned by financial institutions. Finally, we show that idiosyncratic volatility is also positively related to expected earning growth.
Number of Pages in PDF File: 48
Keywords: Earning growth; Factor model; Idiosyncratic volatility; Institutional ownership
JEL Classification: G0, M4working papers series
Date posted: September 20, 2001
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