The Breakdown of Idiosyncratic Volatility Into Expected and Unexpected Components and Its Effects on Stock Returns in Brazil

The Breakdown of Idiosyncratic Volatility Into Expected and Unexpected Components and Its Effects on Stock Returns in Brazil

Based on studies of idiosyncratic volatility developed in the recent literature, this study analyzes its relation with expected returns through the breakdown of idiosyncratic volatility in the Brazilian stock market and presents evidence of the importance of expected idiosyncratic volatility for ass...

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Bibliographic Details
Published in:Latin American business review (Binghamton, N.Y.) Vol. 13; no. 4; pp. 311 - 328
Main Authors: da Silva, Raphael Braga, Bressane, Bernardo Prôa, Viola, Alessandra Pasqualina, Klotzle, Marcelo Cabus, Pinto, Antonio Carlos Figueiredo, de Macedo Soares, T. Diana L. van Aduard
Format: Journal Article
Language:English
Published: Abingdon Taylor & Francis Group 01-10-2012
Taylor & Francis Ltd
Subjects:
Asset pricing
Brazil
Coefficients
expected idiosyncratic volatility
Expected returns
idiosyncratic volatility
Market share
Securities markets
Stock exchange
Stock returns
Studies
unexpected idiosyncratic volatility
unexpected returns
Volatility
Brazil
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Summary:Based on studies of idiosyncratic volatility developed in the recent literature, this study analyzes its relation with expected returns through the breakdown of idiosyncratic volatility in the Brazilian stock market and presents evidence of the importance of expected idiosyncratic volatility for asset pricing. We study the impact of the expected and unexpected components of idiosyncratic volatility on the returns of shares listed on the BOVESPA between 2004 and 2011. The results show a strong positive and significant relation between expected idiosyncratic volatility and returns. This evidence is highlighted when we use unexpected idiosyncratic volatility to control for unexpected returns. Additional robustness tests, controlling for size and momentum effects, also have positive and significant coefficients, corroborating previous findings.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
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ISSN:1097-8526
1528-6932
DOI:10.1080/10978526.2012.749109