Information in the Idiosyncratic Volatility of Small Firms ∗

@inproceedings{Brown2003InformationIT,
  title={Information in the Idiosyncratic Volatility of Small Firms ∗},
  author={David Brown and Miguel A. Ferreira},
  year={2003}
}
Non-systematic volatilities of small firms are special as predictors of stock returns. They are positively related with future returns on all age and size portfolios. They dominate systematic volatility, big-firm volatility and other volatilities. And there is strong evidence that idiosyncratic risk is priced in small-firm returns. Small-firm volatility as a predictor of big-firm returns is in part a proxy for systematic volatility and consumption-wealth ratio. We rule out several hypotheses… CONTINUE READING