Abstract: Traditional asset pricing theory holds that stock returns are mainly related to system risks and non-system risks can be offset by diversification investment. In recent years, some scholars have found that there is a negative correlation between non-systematic risks and expected returns in the stock market, which is contrary to the classical risk pricing theory, thus triggering a discussion on Idiosyncratic Volatility Puzzle. Different scholars have conducted more empirical tests based on different capital markets, data intervals, control variables, and idiosyncratic volatility estimation methods to explore whether the “Idiosyncratic Volatility Puzzle” is widespread in capital markets. However, conclusions are not consistent, and there are three controversies: positive correlation, negative correlation, and irrelevant. Through literature analysis, it is believed that different idiosyncratic risk pricing anomalies come from different idiosyncratic risk measurement models, and based on this, research is conducted.

Key words: idiosyncratic volatility, expected return, asset pricing, capital market