The idiosyncratic volatility puzzle: Time trend or speculative episodes

Michael W. Brandt, Alon Brav, John R. Graham, Alok Kumar

Research output: Contribution to journalArticle

142 Citations (Scopus)

Abstract

Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962-1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and "attention-grabbing" events are consistent with a retail trading effect.

Original languageEnglish (US)
Pages (from-to)863-899
Number of pages37
JournalReview of Financial Studies
Volume23
Issue number2
DOIs
StatePublished - Feb 2010
Externally publishedYes

Fingerprint

Idiosyncratic volatility
Time trends
Retail
Ownership
Investors
Cross-sectional regression
Trend estimation
Stock prices
Reversal
Stock splits

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

The idiosyncratic volatility puzzle : Time trend or speculative episodes. / Brandt, Michael W.; Brav, Alon; Graham, John R.; Kumar, Alok.

In: Review of Financial Studies, Vol. 23, No. 2, 02.2010, p. 863-899.

Research output: Contribution to journalArticle

Brandt, Michael W. ; Brav, Alon ; Graham, John R. ; Kumar, Alok. / The idiosyncratic volatility puzzle : Time trend or speculative episodes. In: Review of Financial Studies. 2010 ; Vol. 23, No. 2. pp. 863-899.
@article{7ab1deb596af4fb9931df10e80cd5b52,
title = "The idiosyncratic volatility puzzle: Time trend or speculative episodes",
abstract = "Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962-1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and {"}attention-grabbing{"} events are consistent with a retail trading effect.",
author = "Brandt, {Michael W.} and Alon Brav and Graham, {John R.} and Alok Kumar",
year = "2010",
month = "2",
doi = "10.1093/rfs/hhp087",
language = "English (US)",
volume = "23",
pages = "863--899",
journal = "Review of Financial Studies",
issn = "0893-9454",
publisher = "Oxford University Press",
number = "2",

}

TY - JOUR

T1 - The idiosyncratic volatility puzzle

T2 - Time trend or speculative episodes

AU - Brandt, Michael W.

AU - Brav, Alon

AU - Graham, John R.

AU - Kumar, Alok

PY - 2010/2

Y1 - 2010/2

N2 - Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962-1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and "attention-grabbing" events are consistent with a retail trading effect.

AB - Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962-1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and "attention-grabbing" events are consistent with a retail trading effect.

UR - http://www.scopus.com/inward/record.url?scp=76549120326&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=76549120326&partnerID=8YFLogxK

U2 - 10.1093/rfs/hhp087

DO - 10.1093/rfs/hhp087

M3 - Article

AN - SCOPUS:76549120326

VL - 23

SP - 863

EP - 899

JO - Review of Financial Studies

JF - Review of Financial Studies

SN - 0893-9454

IS - 2

ER -