Idiosyncratic Volatility Puzzle: The Role of Assets' Interconnections

41 Pages Posted: 29 Aug 2018

See all articles by Roberto Panzica

Roberto Panzica

Goethe University Frankfurt - Research Center SAFE

Date Written: August 8, 2018

Abstract

The paper investigates the determinants of the idiosyncratic volatility puzzle by allowing linkages across asset returns. The first contribution of the paper is to show that portfolios sorted by increasing indegree computed on the network based on Granger causality test have lower expected returns, not related to idiosyncratic volatility. Secondly, empirical evidence indicates that stocks with higher idiosyncratic volatility have the lower exposition on the indegree risk factor.

Keywords: Idiosyncratic volatility puzzle; Networks; Expected Returns; Granger Causality

JEL Classification: G10, G12

Suggested Citation

Panzica, Roberto, Idiosyncratic Volatility Puzzle: The Role of Assets' Interconnections (August 8, 2018). SAFE Working Paper No. 228. Available at SSRN: https://ssrn.com/abstract=3240484 or http://dx.doi.org/10.2139/ssrn.3240484

Roberto Panzica (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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