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Idiosyncratic volatility puzzle: The role of assets' interconnections

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  • Panzica, Roberto Calogero

Abstract

The paper investigates the determinants of the idiosyncratic volatility puzzle by allowing linkages across asset returns. The first contribution of the paper is to show that portfolios sorted by increasing indegree computed on the network based on Granger causality test have lower expected returns, not related to idiosyncratic volatility. Secondly, empirical evidence indicates that stocks with higher idiosyncratic volatility have the lower exposition on the indegree risk factor.

Suggested Citation

  • Panzica, Roberto Calogero, 2018. "Idiosyncratic volatility puzzle: The role of assets' interconnections," SAFE Working Paper Series 228, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:228
    DOI: 10.2139/ssrn.3240484
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    More about this item

    Keywords

    Idiosyncratic volatility puzzle; Networks; Expected Returns; Granger Causality;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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