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 language | English (US) |
|---|---|
| Pages (from-to) | 863-899 |
| Number of pages | 37 |
| Journal | Review of Financial Studies |
| Volume | 23 |
| Issue number | 2 |
| DOIs | |
| State | Published - Feb 2010 |
| Externally published | Yes |
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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 journal › Article
}
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 -