Journal or Book Title
Journal of Banking & Finance
First Page or Article ID Number
This paper proposes a new approach to estimate the idiosyncratic volatility premium. In contrast to the popular two-pass regression method, this approach relies on a novel GMM-type estimation procedure that uses only a single cross-section of return observations to obtain consistent estimates. Also, it enables a comparison of idiosyncratic volatility premia estimated using stock returns with different holding periods. The approach is empirically illustrated by applying it to daily, weekly, monthly, quarterly, and annual US stock return data over the course of 2000–2011. The results suggest that the idiosyncratic volatility premium tends to be positive on daily return data, but negative on monthly, quarterly, and annual data. They also indicate the presence of a January effect.
This is an open access article distributed under the Creative Commons No Derivatives License, which permits unrestricted use and distribution, provided the original work is properly cited.
Khonvansky, Serguey and Zhylyevskyy, Oleksandr, "Impact of idiosyncratic volatility on stock returns: A cross-sectional study" (2013). Economics Publications. 46.