Stocks with recent past high idiosyncratic volatility have low future average returns around the world. Across 23 developed markets, the difference in average returns between the extreme quintile portfolios sorted on idiosyncratic volatility is -1:31% per month, after controlling for world market, size, and value factors. The effect is individually significant in each G7 country. In the United States, we rule out explanations based on trading frictions, information dissemination, and higher moments. There is strong covariation in the low returns to high-idiosyncratic-volatility stocks across countries, suggesting that broad, not easily diversifiable factors lie behind this phenomenon.
Ang, Andrew, Robert Hodrick, Yuhang Xing, and Xiaoyan Zhang. "High idiosyncratic volatility and low returns: International and further U.S. evidence." Journal of Financial Economics 91 (2009): 1-23.
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