We document strong global commonality in firm-level and aggregate idiosyncratic return variances across 23 developed markets, and develop a rational pricing model to explain the empirical pattern. We find that the global common factor of idiosyncratic return variances is highly correlated with...

Innovations in volatility constitute a potentially important asset pricing risk factor that can be tested using the return on variance swaps. We characterize the exposures of returns on equities, bonds and currencies in all regions of the world to U.S. based equity variance risk. We explore...