| The sectional relationship between idiosyncratic volatility and stock returns has been one of the focuses of academic discussion.Some early studies concluded that there is no correlation between idiosyncratic volatility and stock returns.After adding more variables to the regression model,later studies found positive correlations.Since 21st century,more researches have found a negative correlation between the volatility of the idiosyncratic and the stock returns in the next period in various countries' capital markets.This ubiquitous result is contrary to the traditional financial theory,it is called "idiosyncratic volatility puzzle".Although a large number of literatures would like to explain the volatility of idiosyncratic from different angles,so far the academic circles have not agreed on the interpretation of the idiosyncratic volatility.This paper first examines the existence of idiosyncratic volatility in Chinese stock market,and uses the coefficients decomposition method proposed by Hou to measure the explanatory capacity of the potential explanatory variables in the Chinese stock market for the first time,and compares the results with US markets.The potential explanatory variables selected in this paper are both at home and abroad,and the variables that have certain explanatory ability to the idiosyncratic volatility puzzle are considered.including but not limited to skewness,coskewness,idiosyncratic skewncss and maximum daily return,one-month return reversal,Amihud,zero return,turnover and analyst's concern monthly.In order to find out the possible explanation of the characteristic volatility puzzle,the paper studies the 12 indexes of the 300 index futures of Shanghai and Shenzhen.The empirical results show that there is a steady idiosyncratic volatility puzzle in Chinese stock market.Considering the stock market of low price stocks,trading volume,GEM and non-January month,the puzzle is still significant.In measuring the explanatory power of a single explanatory variable,it is found that the maximum daily return and the turnover can completely explain the heterogeneity of the idiosyncratic volatility puzzle.This result shows that the idiosyncratic volatility puzzle in China's stock market can be explained from the angle of the market microstructure and the preference of the gambling stock in behavioral finance.After removing the maximum daily return,the 11 explanatory variables remaining have reached more than 90%of the joint interpretation ability of the idiosyncratic volatility puzzle,and the interpretation ability of seven explanatory variables without considering the arbitrage limit index has reached 90.46%to 100%,This result is far more than 29%to 54%of the combined explanatory power of alternative explanatory variables in the US market to the idiosyncratic volatility.This conclusion shows that the explanatory variables of each explanatory variable in Chinese stock market are obviously stronger than that of the US market,and it shows that the four arbitrage limit indexes are weaker than the marginal interpretation ability of the idiosyncratic volatility puzzle.In the Chinese stock market,the restrictive arbitrage trading system is not the main cause of the idiosyncratic volatility puzzle,and the arbitrage restriction of the betting stock preference and the turnover rate measurement is the important factor that leads to the aberration of the idiosyncratic volatility.The innovation of this paper is that the explanatory variables are quantified by the method of coefficient decomposition,which is more intuitive and convincing compared with the traditional qualitative method.More importantly,the vast majority of empirical literatures believe that because of the special short selling restrictions and the rise-and-drop system of Chinese stock market,the performance of idiosyncratic volatility is aggravated in Chinese stock market,but at least from the empirical results of this paper,these trading systems have no significant effect on the idiosyncratic volatility. |
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