Abstract

We investigate the performances of the ARFIMA, HAR, and EGARCH models in capturing the time-varying property of idiosyncratic volatility (IVOL). We find that the expected IVOL predictions by HAR are superior. In diverse portfolio scenarios, a greater degree of judgment is required to assess the pricing ability of expected IVOLs. For the lowest value-weighted quintiles and the expected IVOL estimated by the HAR model, the IVOL-return relationship is negative. Conversely, the IVOL-return relationship is positive for the expected IVOL estimated by the EGARCH model. Further evidence suggests a complicated and mixed relationship between the expected IVOL estimated by the ARFIMA model and stock returns.

Original languageEnglish
JournalReview of Quantitative Finance and Accounting
Early online date29 Apr 2024
DOIs
Publication statusE-pub ahead of print - 29 Apr 2024

Keywords

  • ARFIMA
  • Asset Pricing
  • C53
  • EGARCH
  • G12
  • G17
  • HAR
  • Idiosyncratic volatility
  • Time-varying

ASJC Scopus subject areas

  • Accounting
  • General Business,Management and Accounting
  • Finance

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