Aggregate idiosyncratic volatility in G7 countries

Description

"The paper analyzes aggregate idiosyncratic volatility (IV) in G7 countries using recent data up to 2003. Consistent with Campbell, Lettau, Malkiel, and Xu's (2001) results obtained from U.S. data over the period 1962-97, we find that the equal-weighted IV exhibits a significant upward trend in the U.S. and some other countries in the extended sample. The trend, however, appears to be mainly due to the increasing number of publicly traded companies since we fail to uncover a similar trend in the value-weighted IV of all seven countries. IV is highly correlated across countries and we document a significant Granger causality from the U.S. to the other countries and vice versa. Moreover, while U.S. value-weighted IV has significant predictive power for international stock returns, the value-weighted IV of other countries helps forecast U.S. stock returns as well because of its co-movements with U.S. data. The results indicate that IV is a proxy for systematic risk"--Federal Reserve Bank of St. Louis web site.

Subjects

Series Statement

• Working paper ;
• 2004-027A
• Working paper (Federal Reserve Bank of St. Louis : Online) ;

Links

• http://research.stlouisfed.org/wp/more/2004-027/
• URL