The Fu (2009) positive relation between idiosyncratic volatility and expected returns is due to look-ahead bias

Expected idiosyncratic volatility and its positive relation to expected returns of Fu (2009) can be closely replicated, but only when we include all information up to time t to estimate the idiosyncratic volatility of t. Since this involves look-ahead bias, we re-estimate expected idiosyncratic volatility using information only up to t-1. We find no significant relation between idiosyncratic volatility and returns, and our results are robust to the sample periods extended to before and after that of Fu (2009). Our findings are consistent with the fact that idiosyncratic risk is not priced.