Working Paper: CEPR ID: DP18230
Authors: Geert Bekaert; Xue Wang; Xiaoyan Zhang
Abstract: We document strong global commonality in country idiosyncratic return variances across 23 developed markets, which is stronger than international return commonality. The global common factor of idiosyncratic return variances is highly correlated with that of idiosyncratic cash flow variances, and is also significantly related to variables capturing aggregate discount rate variation and the conditional market variance. Furthermore, aggregate idiosyncratic return and cash flow variances are predominantly but not always countercyclical.
Keywords: return; idiosyncratic variance; cash flow idiosyncratic variance; global commonality; countercyclical; economic uncertainty; return on equity
JEL Codes: F39; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global commonality in idiosyncratic return variances (F29) | idiosyncratic cash flow variances (G31) |
| global idiosyncratic return variances (C29) | aggregate discount rate variation (E43) |
| global idiosyncratic return variances (C29) | conditional market variance (G19) |
| aggregate idiosyncratic return variances (C29) | economic growth (O49) |
| aggregate cash flow variances (E10) | economic growth (O49) |