a2 [email protected], Business School, Columbia University, 3022 Broadway, New York, NY 10027
a3 [email protected], Krannert School of Management, Purdue University, 403 W State St, West Lafayette, IN 47907
We examine aggregate idiosyncratic volatility in 23 developed equity markets, measured using various methodologies. We find no evidence of upward trends after extending the sample to 2008. Instead, idiosyncratic volatility is well described by a stationary autoregressive process that occasionally switches into a higher-variance regime that has relatively short duration. We also document that idiosyncratic volatility is highly correlated across countries. Most of the time variation in idiosyncratic volatility can be attributed to variation in a growth opportunity proxy, total (U.S.) market volatility, and in most specifications, the variance premium, a business cycle sensitive risk indicator.