The common factor in idiosyncratic volatility: Quantitative asset pricing implications

• 成果类型: Article
• 署名作者: Herskovic, Bernard; Kelly, Bryan; Lustig, Hanno; Van Nieuwerburgh, Stijn
• 署名单位: University of California System; University of California Los Angeles; University of Chicago; Stanford University; New York University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2015.09.010
• 发表日期: 2016
• 页码: 249-283
• 关键词: Firm volatility; idiosyncratic risk; Cross section of stock returns

摘要

We show that firms' idiosyncratic volatility obeys a strong factor structure and that shocks to the common idiosyncratic volatility (CIV) factor are priced. Stocks in the lowest CIV-beta quintile earn average returns 5.4% per year higher than those in the highest quintile. The CIV factor helps to explain a number of asset pricing anomalies. We provide new evidence linking the CIV factor to income risk faced by households. Our findings are consistent with an incomplete markets heterogeneous agent model. In the model, CIV is a priced state variable because an increase in idiosyncratic firm volatility raises the average household's marginal utility. The calibrated model matches the high degree of co-movement in idiosyncratic volatilities, the CIV-beta return spread, and several other asset price moments. (C) 2015 Elsevier B.V. All rights reserved.