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Article Dans Une Revue Research in International Business and Finance Année : 2023

Dissecting the Idiosyncratic Volatility Puzzle: A Fundamental Analysis Approach

Résumé

This paper argues fundamental information help resolve information uncertainty that leads to high idiosyncratic volatility premium. The IVOL-return relation is negative for stocks with poor fundamental strength but positive for stocks with strong fundamental strength. The arrival of fundamental news weakens the negative IVOL effect. Our findings are robust for alternative model specifications. Moreover, the negative IVOL effect dominates the positive IVOL effect due to arbitrage asymmetry that buying is easier than short selling stocks. Consistent with arbitrage asymmetry, the negative IVOL effect is stronger for stocks with low institutional ownership and following high investor sentiment. Overall, we provide a simple fundamental-based explanation for idiosyncratic volatility puzzle.
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Dates et versions

hal-04194180 , version 1 (02-09-2023)

Identifiants

  • HAL Id : hal-04194180 , version 1

Citer

Zhaobo Zhu, Wenjie Ding, Yi Jin, Dehua Shen. Dissecting the Idiosyncratic Volatility Puzzle: A Fundamental Analysis Approach. Research in International Business and Finance, 2023, 66. ⟨hal-04194180⟩

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