A spurious positive relation between EGARCH estimates of expected month t idiosyncratic volatility and month t stock returns arises when the month t return is included in the estimation of model parameters. We illustrate via simulations that this look-ahead bias is problematic for empirically...

We provide empirical evidence for the incomplete information model advanced by Merton (1987), which shows that the relation between idiosyncratic volatility (IV) and expected return is conditional on the firm's investor base. Using four different proxies for investor base, we show that...