Risk appetite, idiosyncratic volatility and expected returns

This paper examines the variations in idiosyncratic volatility in stock returns over time, and evaluates the role of investor sentiment in explaining these variations. This study uses Fama and French's (2015) 5-factor model to calculate the idiosyncratic volatility with data from the Center for Research in Security Prices (CRSP) for 1980–2016, and analyzes the effects of investors' risk appetite reflected by market-based, press-based, and...