Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/295008 
Authors: 
Year of Publication: 
2022
Citation: 
[Journal:] Junior Management Science (JUMS) [ISSN:] 2942-1861 [Volume:] 7 [Issue:] 4 [Year:] 2022 [Pages:] 945-985
Publisher: 
Junior Management Science e. V., Planegg
Abstract: 
In this study, I investigate the robustness of the idiosyncratic volatility puzzle to the configuration of the research design. Using the regression- as well as the portfolio-based concept, I start with the replication of the idiosyncratic volatility puzzle approving the findings of Ang et al. (2006). However, when idiosyncratic volatility is estimated from monthly data and a time window spanning 1 or 5 years, the puzzle vanishes, regardless of the research method employed. Similar result hold if only stocks with a market capitalization above the cross-sectional median or those with a price higher than 10$ are used. Independent of the weighting scheme, the puzzle is also absent in the regression-based context when the risk premia are estimated by generalized least squares weighting returns by the inverse of their variance estimates. The same finding is derived in the portfolio-based context by extending the holding period to 12 months or controlling for the past month maximum daily return.
Subjects: 
Idiosyncratic Volatility
Cross-section of stock returns
Predictability
Risk Premium
Robustness
Idiosyncratic Volatility
Cross-section of stock returns
Predictability
Risk Premium
Robustness
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Document Type: 
Article
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