The International Commonality of Idiosyncratic Variances

We document strong global commonality in country idiosyncratic return variances across23 developed markets, which is stronger than international return commonality. The globalcommon factor of idiosyncratic return variances is highly correlated with that of idiosyncratic cashflow variances, and is also significantly related to variables capturing aggregate discount ratevariation and the conditional market variance. Furthermore, aggregate idiosyncratic return andcash flow variances are predominantly but not always countercyclical.