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Idiosyncratic return volatility and the role of firm fundamentals: A cross-country analysis

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  • Nejad, Ali Ebrahim
  • Hoseinzade, Saeid

Abstract

We investigate the relation between fundamental idiosyncratic volatility and stock returns idiosyncratic volatility using data from 56 countries. We find a strong positive relation between fundamental idiosyncratic volatility and idiosyncratic volatility of returns. This association, however, seems to be entirely concentrated in the developed economies, and we find no effect in the emerging markets. Specifically, fundamental idiosyncratic volatility does not lead to more idiosyncratic return volatility in countries with poor legal institutions and weak shareholder protection laws.

Suggested Citation

  • Nejad, Ali Ebrahim & Hoseinzade, Saeid, 2021. "Idiosyncratic return volatility and the role of firm fundamentals: A cross-country analysis," Global Finance Journal, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:glofin:v:50:y:2021:i:c:s104402832100065x
    DOI: 10.1016/j.gfj.2021.100667
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    More about this item

    Keywords

    Idiosyncratic volatility; Cash flow; Comovement; International markets; Investor protection; Institutions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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