Lustig, Hanno; Van Nieuwerburgh, Stijn; Herskovic, Bernard - National Bureau of Economic Research (NBER) - 2014
We show that firms’ idiosyncratic volatility obeys a strong factor structure and that shocks to the common factor in idiosyncratic volatility (CIV) are priced. Stocks in the lowest CIV-beta quintile earn average returns 5.4% per year higher than those in the highest quintile. The CIV factor...