A0256
Title: Idiosyncratic volatility factor and macroeconomic risks
Authors: Yangming Bao - Capital University of Economics and Business (China) [presenting]
Ying Lun Cheung - Capital University of Economics and Business (China)
Abstract: An econometric framework is proposed to extract the common factor among assets' idiosyncratic volatilities documented in the literature lately. The idiosyncratic volatility factor (IVF) is shown to have a superb asset pricing ability and command a negative price of risk as predicted by theory. Exploring the link between IVF and macroeconomic risks, a strong positive relationship is found between IVF and macroeconomic uncertainty. Using a fractionally cointegrated VAR model, further the long-run equilibrium relation is uncovered between IVF and the market volatility and the impact of disequilibrium on macroeconomic uncertainty.
