Idiosyncratic Volatility - Evidence from the Nordic Equity Markets

Sammanfattning: Using the disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels, introduced by Campbell, Lettau, Malkiel, and Xu (2001), we present empirical evidence on the volatility composition of stocks traded on the Nordic equity markets. Our results reject the common notion of rising stock volatility with respect to all three components of volatility, but unveil recent periods of increased high-frequency noise. However, we find that all volatility components have returned to their longrun levels in the years following the speculative episodes during the late 1990s and early 2000s. Moreover, we find evidence that the components of volatility are sensitive to changes in the composition of securities used in the estimation