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Bridge over ocean
1 November 2015 Financial Analysts Journal Volume 71, Issue 6

Idiosyncratic Volatility and Expected Returns at the Global Level

  1. Mehmet Umutlu

The author investigated the existence and significance of a global cross-sectional relation between idiosyncratic volatility and expected returns by introducing a global idiosyncratic volatility measure and globally diversified test assets. He found that portfolios with the highest and lowest global idiosyncratic volatility do not earn significantly different average returns, indicating no link between global idiosyncratic volatility and expected returns. His results show that global diversification is effective in stabilizing the returns of global test assets and that benefits from global diversification can be gained by diversifying across either countries or industries.

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