Idiosyncratic volatility and global equity markets

Abstract

This article investigates the relation of idiosyncratic volatility (IVOL) and future returns on a portfolio level in global equity markets. In contrast to previous studies (Ang et al. 2006, 2009), it reveals that the spread between stock indices exhibiting a high IVOL and stock indices with low IVOL is positive and unrelated to movements in the business cycle. Traditional asset pricing models cannot explain the spread.