Khovansky, Serguey; Zhylyevskyy, Oleksandr - Department of Economics, Iowa State University - 2012
We apply a new econometric method -- the generalized method of moments under a common shock -- to estimate idiosyncratic volatility premium and average idiosyncratic stock volatility. In contrast to the popular two-pass estimation approach of Fama and MacBeth (1973), the method requires using...