Idiosyncratic volatility: An indicator of noise trading?
研究发现，用绝对特质波动衡量的公司特定收益变化与错误定价正相关，反映了噪音交易者的作用，并解释了以往文献中矛盾的结果。
We investigate the market efficiency implications of firm-specific return variation measured by absolute idiosyncratic volatility. We find that the absolute idiosyncratic volatility (the variance of the residual from an asset-pricing model) displays a positive and robust relationship to mispricing, which reflects an increasing role of noise traders. Previous literature has produced similar – or opposing – results. We deepen our understanding of the previous conflicting results by showing that (1) market volatility by itself is associated with mispricing, (2) absolute idiosyncratic volatility is associated with mispricing even when controlling for market volatility, (3) the strength of the association between absolute idiosyncratic volatility and mispricing depends on the level of market volatility, and (4) absolute and relative measures of idiosyncratic volatility have opposing associations with mispricing. Our findings contribute to the existing literature by reconciling the mixed results for the relationship between idiosyncratic volatility and mispricing displayed in the previous literature.