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The International Commonality of Idiosyncratic Variances

Author

Listed:
  • Geert Bekaert

    (Finance Division, Columbia Business School, Columbia University, New York, New York 10027; and Centre for Economic Policy Research (CEPR), London EC1V 0DX, United Kingdom)

  • Xue Wang

    (PBC School of Finance, Tsinghua University, Beijing 100083, P.R. China)

  • Xiaoyan Zhang

    (PBC School of Finance, Tsinghua University, Beijing 100083, P.R. China)

Abstract

We document strong global commonality in country idiosyncratic return variances across 23 developed markets, which is stronger than international return commonality. The global common factor of idiosyncratic return variances is highly correlated with that of idiosyncratic cash flow variances and is also significantly related to variables capturing aggregate discount rate variation and the conditional market variance. Furthermore, aggregate idiosyncratic return and cash flow variances are mostly but not always countercyclical.

Suggested Citation

  • Geert Bekaert & Xue Wang & Xiaoyan Zhang, 2025. "The International Commonality of Idiosyncratic Variances," Management Science, INFORMS, vol. 71(3), pages 2216-2244, March.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:3:p:2216-2244
    DOI: 10.1287/mnsc.2022.01398
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