The relation between time-series and cross-sectional effects of idiosyncratic variance on stock returns in G7 countries
By: by Hui Guo and Robert Savickas
Contributors: Savickas, Robert; Federal Reserve Bank of St. Louis
Series: Working paper -- 2006-036A; Working paper (Federal Reserve Bank of St. Louis : Online) -- 2006-036A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2006
Place of publication: St. Louis, Mo.]
Language: eng
Format: [electronic resource] /
Description: "This paper suggests that CAPM-based idiosyncratic variance (IV) correlates negatively with future stock returns because it is a proxy for loadings on discount-rate shocks in Campbell's (1993) ICAPM.  The ICAPM also implies that there are important links between the time-series and cross-sectional IV effects.  For example, the coefficients on conditional stock market variance and value-weighted average IV obtained from the time-series regressions reflect loadings on stock market returns and discount-rate shocks, respectively; therefore, they should help explain the cross section of stock returns.  Moreover, we expect a close relation between the IV and book-to-market effects because recent studies show that the latter also reflects intertemporal pricing.  These conjectures are strongly supported by the G7 countries data"--Federal Reserve Bank of St. Louis web site.
Notes: Title from PDF file as viewed on 6/1/2006.

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