The idiosyncratic volatility puzzle: Time trend or speculative episodes

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

Research output: Contribution to journalArticle

150 Scopus citations

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 1 2010
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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