New Factor Structure Models and Idiosyncratic Volatility

Author

Ossama Elhadary, The Graduate Center, City University of New YorkFollow

Date of Degree

9-2019

Document Type

Dissertation

Degree Name

Ph.D.

Program

Economics

Advisor

Liuren Wu

Committee Members

Matthew Baker

Matthew Nagler

Subject Categories

Economics | Finance | Finance and Financial Management

Keywords

Idiosyncratic, Volatility, Fama, Fama French, Alpha, CAPM

Abstract

In this dissertation, I propose new factor structures that are based on the Fama-French style factors but include additional locations like the industry groups and the exchanges where the stocks are traded. I show that the stock returns are clustered around the industry groups and the exchanges. Idiosyncratic volatility calculated using the new factor structure models tend to be smaller than those calculated using the traditional Fama-French model. By sorting portfolios using the idiosyncratic volatility computed using the new factor models, a trader can gain larger profits compared to sorting the portfolio using the traditionally calculated idiosyncratic volatility.

Recommended Citation

Elhadary, Ossama, "New Factor Structure Models and Idiosyncratic Volatility" (2019). CUNY Academic Works.
https://academicworks.cuny.edu/gc_etds/3494