Determinants of Idiosyncratic Volatility in Listed Firms on Tehran Stock Exchange

This study aims to investigate the effect of firm-specific characteristics predicting stock return on future idiosyncratic volatility. The sample of the study comprises of 100 listed firms on Tehran Stock Exchange during the period 2010 to 2017. The decile portfolio analysis approach has been used to determine the specific characteristics of stock return predictors. Also, the time series of the CAPM model and the EGARCH model are applied to extract conditional and unconditional idiosyncratic volatility on individual securities. In addition, a multivariate regression with a combination of data was used to examine the quality of the relationship between the firm-specific characteristics predicting stock return and the future idiosyncratic volatility of individual securities in the conditional and unconditional framework. The results of the portfolio analysis show that cross-sectional return variations of firms are associated with firms-specific characteristics such as firm size, book-to-market ratio, liquidity, momentum, and cash flow-to-price ratio. Also, the results show that the reverse and significant impact of the firm size and the cash flow-to-price ratio as well as the direct and significant impact of the book-to-market ratio and liquidity on the future idiosyncratic volatility.