Abstract
We investigate the time series behavior of idiosyncratic volatility and its role in asset pricing in France. We find that both aggregate idiosyncratic and market volatility exhibit regime switching behavior similar to that in the U.S. and other developed countries. Furthermore, we find a marginally significant negative IVOL effect in the French stock market. We add new evidence to the mounting results questioning the ubiquity of the IVOL effect which highlights the importance of country verification of so called anomalies in the US, even in developed markets.
Highlights
In a recent study, Ang et al [1] confirm the ubiquity of a puzzling negative idiosyncratic volatility (IVOL) effect [1] in 23 developed countries, including the seven largest developed economies (G7) where high volatility stocks earn low risk-adjusted returns
Among G7 countries did France show a decrease in the magnitude of the idiosyncratic volatility coefficient when idiosyncratic volatility was computed using a local Fama-French model instead of a world Fama-French model, and the idiosyncratic volatility coefficient turned insignificant, indicating the absence of an IVOL effect
This is consistent with results in other markets the U.S IVOLEW is less variable than IVOLVW as indicated by its lower coefficient of variation (CV)
Summary
Ang et al [1] confirm the ubiquity of a puzzling negative idiosyncratic volatility (IVOL) effect [1] in 23 developed countries, including the seven largest developed economies (G7) where high volatility stocks earn low risk-adjusted returns. We add new evidence to the mounting results questioning the ubiquity of the IVOL effect This highlights the importance of country verification of so called anomalies in the US, even in developed markets. We confirm earlier evidence that idiosyncratic volatility in the French stock market exhibits a regime switching behavior rather than showing a long-term time trend.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
