Sorting Out the Idiosyncratic Volatility Anomaly
August 12, 2013 - Volatility Effects
Does exceptional (idiosyncratic) stock volatility exploitably predict future returns? In her April 2013 paper entitled “Revisiting Idiosyncratic Volatility and Stock Returns”, Fatma Sonmez re-examines the relationship between idiosyncratic volatility and future stock returns. She defines idiosyncratic volatility as the standard deviation of daily residuals from monthly regressions of returns (in excess of the risk-free rate) for each stock versus Fama-French model factors. Using daily returns and contemporaneous market, size and book-to-market factors for U.S. listed stocks during 1963 through 2008, she finds that: Keep Reading