Idiosyncratic Volatility, Stock Market Volatility, and Expected Stock Returns

By Hui Guo, R. Savickas. 2006

174 citations recorded by the source corpus.

We find that the value-weighted idiosyncratic stock volatility and aggregate stock market volatility jointly exhibit strong predictive power for excess stock market returns. The stock market risk–return relation is found to be positive, as stipulated by the capital asset pricing model; however, idiosyncratic volatility is negatively related to future stock market returns. Also, idiosyncratic volatility appears to be a pervasive macrovariable, and its forecasting abilities are very similar to those of the consumption–wealth ratio proposed by Lettau and Ludvigson.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/26cfed9b06edb8445ee8a361258dee1c2cd57845

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In Economics and Econometrics

1. Hui Guo
2. R. Savickas

In Finance

1. Hui Guo
2. R. Savickas

Citations in the corpus

• Return Reversals, Idiosyncratic Risk, and Expected Returns (2009, unknown): “Consistent with Jegadeesh and Titman (1993), our results indicate that the coefficient on momentum is positive and significant in all of the models.”
• Average Idiosyncratic Volatility in G7 Countries (2004, methodology): “However, panel B shows that, consistent with Guo and Savickas (2006), when combined with stock market volatility, both variables are strong predictors of stock market returns in U.”