Dissecting the Idiosyncratic Volatility Anomaly

40 Pages Posted: 17 Mar 2012  

Linda H. Chen

Washington State University

George J. Jiang

Washington State University

Danielle Xu

Gonzaga University

Tong Yao

University of Iowa - Henry B. Tippie College of Business

Date Written: January 28, 2012

Abstract

The idiosyncratic volatility anomaly, as first documented in Ang, Hodrick, Xing, and Zhang (2006), has received considerable attention in the literature. In this paper, we examine the pervasiveness of the anomaly in various stock samples and provide evidence towards distinguishing potential explanations. Our results show that the idiosyncratic volatility anomaly is a common stock phenomenon. It is rather robust once we exclude microcaps, as defined in Fama and French (2008), or penny stocks (with prices below $5), or the month of January, corroborating the findings in Doran, Jiang, and Peterson (2010). In addition, we show that the idiosyncratic volatility anomaly is not due to the market microstructure effect and cannot be explained by short-term stock return reversal.

Keywords: idiosyncratic volatility, stock returns, robustness, market microstructure effect

JEL Classification: G12, G14

Suggested Citation

Chen, Linda H. and Jiang, George J. and Xu, Danielle and Yao, Tong, Dissecting the Idiosyncratic Volatility Anomaly (January 28, 2012). Available at SSRN: https://ssrn.com/abstract=2023883 or http://dx.doi.org/10.2139/ssrn.2023883

Linda H. Chen

Washington State University ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States
5093355723 (Phone)

George Jiang (Contact Author)

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Danielle Xu

Gonzaga University ( email )

Spokane, WA 99258
United States

Tong Yao

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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