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High Idiosyncratic Volatility And Low Returns
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Book Synopsis High Idiosyncratic Volatility and Low Returns by : Andrew Ang
Download or read book High Idiosyncratic Volatility and Low Returns written by Andrew Ang and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stocks with recent past high idiosyncratic volatility have low future average returns around the world. Across 23 developed markets, the difference in average returns between the extreme quintile portfolios sorted on idiosyncratic volatility is -1.31% per month, after controlling for world market, size, and value factors. The effect is individually significant in each G7 country. In the U.S., we rule out explanations based on trading frictions, information dissemination, and higher moments. There is strong comovement in the low returns to high idiosyncratic volatility stocks across countries, suggesting that broad, not easily diversifiable, factors may lie behind this phenomenon.
Book Synopsis Empirical Asset Pricing by : Turan G. Bali
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Book Synopsis High Idiosyncratic Volatility and Low Returns by : Ajay Bhootra
Download or read book High Idiosyncratic Volatility and Low Returns written by Ajay Bhootra and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The well-documented negative relationship between idiosyncratic volatility and stock returns is puzzling if investors are risk-averse. However, under prospect theory, while investors are risk-averse in the domain of gains, they exhibit risk-seeking behavior in the domain of losses. Consistent with risk-seeking investors' preference for high volatility stocks in the loss domain, we find that the negative relationship between idiosyncratic volatility and stock returns is concentrated in stocks with unrealized capital losses, but is non-existent in stocks with unrealized capital gains. This finding is robust to control for short-term return reversals and maximum daily return, among other variables.
Book Synopsis The negative relationship between the cross-section of expected returns and lagged idiosyncratic volatility. The German stock market 1990-2016 by : Lasse Homann
Download or read book The negative relationship between the cross-section of expected returns and lagged idiosyncratic volatility. The German stock market 1990-2016 written by Lasse Homann and published by GRIN Verlag. This book was released on 2020-04-23 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2018 in the subject Business economics - Review of Business Studies, grade: 1.0, University of Hannover (Institute of Financial Markets), language: English, abstract: The main goal of this thesis is to examine whether the negative relationship between the cross-section of expected returns and lagged idiosyncratic volatility also can be found for the German stock market for the period of January 1990 through June 2016, by sorting stocks into portfolios on the basis of their idiosyncratic volatility estimates. This procedure follows Ang et al. (2006). Similar to the findings of Ang et al. (2006) for the US stock market this paper shows that there is a significant difference in returns relative to the Fama-French three-factor model, between portfolios of stocks with high and portfolios of stocks with low past idiosyncratic volatility. Although for the period 1990 - 2016 no relationship between lagged idiosyncratic volatility and the cross-section of stock returns has been found, the Idiosyncratic Volatility Puzzle reveals itself for the sub-period 2003 - 2016, when the respective portfolios of stocks with different levels of idiosyncratic volatility are controlled for size.
Book Synopsis Essays on Idiosyncratic Volatility and Asset Pricing by : Fatma Sonmez Saryal
Download or read book Essays on Idiosyncratic Volatility and Asset Pricing written by Fatma Sonmez Saryal and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, I study three aspects of idiosyncratic volatility. First, I examine the relation between idiosyncratic volatility and future stock returns. Next, I examine the share price effect and its interaction with the idiosyncratic volatility on stock returns. Finally, I examine the time series pattern of monthly aggregate monthly idiosyncratic volatility. In the first chapter, I examine the relation between idiosyncratic volatility and future stock returns. In their paper, Ang, Hodrick, Xing, and Zhang [AHXZ (2006)] show that idiosyncratic volatility is inversely related to future stock returns: low idiosyncratic volatility stocks earn higher returns than do high idiosyncratic volatility stocks. The main contribution of this paper is to provide evidence that it is the month to month changes in idiosyncratic volatility that produce AHXZ's results. More specifically, a portfolio of stocks that move from Quintile 1 (low idiosyncratic volatility) to Quintile 5 (high idiosyncratic volatility) earns an average risk-adjusted return of 5.64% per month in the month of the change. Whereas, a portfolio of stocks that move from the highest to the lowest idiosyncratic volatility quintiles earns -0.94% per month in the month of the change. Eliminating all firm-month observations with idiosyncratic volatility quintile changes, I find the opposite results to AHXZ: it is persistently low idiosyncratic volatility stocks that earn lower returns than do persistently high idiosyncratic volatility stocks. I find that many of the extreme changes in idiosyncratic volatility are related to business events. In general, the pattern usually observed is that an announcement or an event increases uncertainty about a stock and hence, its idiosyncratic volatility increases. After the event, uncertainty is resolved and the stock returns to a lower idiosyncratic volatility quintile. In the second chapter, I examine how the level of the share price interacts with idiosyncratic volatility to affect future stock returns. Ignoring transaction costs, a trading strategy that is long high-priced and short low-priced stocks earns positive abnormal returns with respect to the Fama-French (1992) three factor model. However, the observed positive abnormal returns are less significant if momentum is taken into account via the Carhart (1997) four factor model. Also the relation between idiosyncratic volatility and future stock returns differs for price sorted portfolios: it is negative for low and mid-priced stocks but positive for high-priced ones. These results are robust for low and-mid-priced stocks even after momentum is included. However, the positive relation for high-priced stocks disappears due to relatively large loadings on momentum for high idiosyncratic volatility stocks. I also show that skewness and momentum are significant determinants of idiosyncratic volatility for low-priced stocks and high-priced stocks respectively. One implication is that the importance of idiosyncratic volatility for future stock returns may in part be due its role as a disguised risk factor: either for momentum for high-priced stocks and skewness for low and mid-priced stocks. In the third chapter, I investigate the time series pattern of aggregate monthly idiosyncratic volatility. It has been shown that new riskier listings in the US stock markets are a reason for the increase in idiosyncratic volatility during the period 1963-2004. First, I show that this is more pronounced for Nasdaq new listings. Second, I show that for Nasdaq, prior to 1994 low-priced new listings became riskier, whereas during the internet bubble period it is the higher-priced listings that became riskier. Third, I show that institutional holdings have increased over time and have had a different impact on each new listing group: a negative for pre-1994 listings and a positive impact for post-1994 listings. Hence, I conclude that the observed time-series pattern of idiosyncratic volatility is a result of the changing nature of Nasdaq's investor clientele.
Book Synopsis Cointegration, Causality, and Forecasting by : Halbert White
Download or read book Cointegration, Causality, and Forecasting written by Halbert White and published by Oxford University Press, USA. This book was released on 1999 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: A collection of essays in honour of Clive Granger. The chapters are by some of the world's leading econometricians, all of whom have collaborated with and/or studied with both) Clive Granger. Central themes of Granger's work are reflected in the book with attention to tests for unit roots and cointegration, tests of misspecification, forecasting models and forecast evaluation, non-linear and non-parametric econometric techniques, and overall, a careful blend of practical empirical work and strong theory. The book shows the scope of Granger's research and the range of the profession that has been influenced by his work.
Book Synopsis The Information Content of Idiosyncratic Volatility by : George J. Jiang
Download or read book The Information Content of Idiosyncratic Volatility written by George J. Jiang and published by . This book was released on 2012 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses adverse selection in corporate information disclosure to explain a recently documented asset pricing anomaly. Ang, Hodrick, Xing, and Zhang (2006a) show that stocks with high idiosyncratic return volatilities tend to have low future returns. In this paper, we find that idiosyncratic volatility is also inversely related to future earning shocks. More importantly, we show that the return predictive power of idiosyncratic volatility is induced by its information content on future earnings. We provide empirical results to support our explanation that firms with poor prospect of future earnings tend to disclose less information, resulting in a higher degree of heterogeneity in investors beliefs, which in turn leads to higher stock return volatility and trading volume. Further analysis suggests that investors tend to underreact to earnings information in idiosyncratic volatility, and the mispricing of idiosyncratic volatility is inversely related to both investor sophistication and stock liquidity.
Book Synopsis Separating Up from Down by : Laura Frieder
Download or read book Separating Up from Down written by Laura Frieder and published by . This book was released on 2013 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The finding that stocks with high idiosyncratic volatility tend to have low future returns has been dubbed an empirical anomaly in the finance literature. We seek to understand this puzzle by separating the upside volatility associated with positive idiosyncratic returns from the downside risk associated with negative idiosyncratic returns. We find that downside risk is not inversely related to future stock returns, thus easing the concern that the empirical anomaly is a mispricing of risk. Rather, our results suggest that it is upside volatility that drives the inverse idiosyncratic volatility and return relation. We further examine whether the relation of future returns with downside and upside volatility accords with investor underreaction to bad news and overreaction to good news. Finally, we show that momentum strategies may be enhanced by taking into account stocks' upside volatility.
Book Synopsis Financial Distress and Idiosyncratic Volatility by : Lorán Chollete
Download or read book Financial Distress and Idiosyncratic Volatility written by Lorán Chollete and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We address the twin puzzles of anomalously low returns for high idiosyncratic volatility and high distress risk stocks, documented by Ang, Hodrick, Xing and Zhang (2006) and Campbell, Hilscher and Szilagyi (2005), respectively. We accomplish two objectives in this study. First, we investigate the link between idiosyncratic volatility and distress risk and find that the idiosyncratic volatility effect exists only conditionally on high distress risk. Second, using a corrected single-beta CAPM model, we provide a rational explanation for the twin puzzles. Joint statistical tests cannot reject the null hypothesis of zero abnormal returns across the idiosyncratic volatility and distress risk portfolios, for the corrected model.
Book Synopsis Stochastic Idiosyncratic Cash Flow Risk and Real Options by : Harjoat Singh Bhamra
Download or read book Stochastic Idiosyncratic Cash Flow Risk and Real Options written by Harjoat Singh Bhamra and published by . This book was released on 2016 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stocks with high idiosyncratic volatility perform poorly relative to low idiosyncratic volatility stocks. We offer a novel explanation of this anomaly based on real options, which is consistent with earlier findings on idiosyncratic volatility (the positive contemporaneous relation between firm-level stock returns and idiosyncratic volatility). Our approach is based on introducing stochastic idiosyncratic cash flow risk into an equity valuation model of firms with growth options. Within our model, a firm's systematic risk depends on the delta of its growth option. The growth option's delta is lower when idiosyncratic volatility rises, driving down the firm's systematic risk and hence its expected return - firms with higher idiosyncratic volatility therefore have lower expected returns. Our model additionally offers the following novel empirical predictions: (i) returns correlate positively with idiosyncratic volatility during intervals between large changes in idiosyncratic volatility (the switch effect), and (ii) the anomalies and the switch effect are stronger for firms with more real options and which undergo larger changes in idiosyncratic volatility. Empirical results support the predictions of our model.
Book Synopsis Idiosyncratic Volatility, Measurement Frequency and Return Reversal by : Xiafei Li
Download or read book Idiosyncratic Volatility, Measurement Frequency and Return Reversal written by Xiafei Li and published by . This book was released on 2014 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether the negative relation between idiosyncratic volatility and expected returns is due to stock return reversals as argued by Fu (2009) and Huang, Liu, Rhee and Zhang (2010). Controlling the return reversal effect, it shows that stocks with different past returns have different relations. The positive relation is mainly driven by stocks with low past returns, while the negative relation is result from stocks with high past returns. Additionally, the relation is very sensitive to the measurement frequency of idiosyncratic volatility, and the daily realized idiosyncratic volatility measure is a better proxy for the expected idiosyncratic volatility than the monthly measure. By employing an exponential generalized autoregressive conditional heteroskedascticity-in-mean (EGARCH-M) model, this paper finds a strong positive relation between time-varying risk premium and idiosyncratic volatility for portfolios containing stocks with low past returns and small portfolio, and a negative relation for growth portfolio.
Book Synopsis Stocks, Bonds, Bills, and Inflation by : Roger G. Ibbotson
Download or read book Stocks, Bonds, Bills, and Inflation written by Roger G. Ibbotson and published by . This book was released on 1989 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Next Microsoft? Skewness, Idiosyncratic Volatility, and Expected Returns by : Nishad Kapadia
Download or read book The Next Microsoft? Skewness, Idiosyncratic Volatility, and Expected Returns written by Nishad Kapadia and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the low subsequent returns of stocks with high idiosyncratic volatility, documented by prior research. There is substantial time-series co-variation between stocks with high idiosyncratic risk. I examine an alternative measure of aggregate skewness, the cross-sectional skewness of all firms at a given point in time. Cross-sectional skewness helps explain both the common time-variation and the premium associated with firms with high idiosyncratic volatility. Sensitivity to cross-sectional skewness is also related to the underperformance of Initial Public Offerings (IPOs) and small growth stocks. IPOs only underperform if they list in times of high cross-sectional skewness. These results imply that the low returns to IPOs, small growth stocks and highly volatile stocks are a result of a preference for skewness. Finally, proxies for technological change, such as lagged patent grant growth, predict future cross-sectional skewness. This suggests an economic interpretation of cross-sectional skewness as the result of changes in industry structure brought about by shocks such as significant technological change.
Book Synopsis The Cross-Section of Volatility and Expected Returns by : Andrew Ang
Download or read book The Cross-Section of Volatility and Expected Returns written by Andrew Ang and published by . This book was released on 2010 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine how volatility risk, both at the aggregate market and individual stock level, is priced in the cross-section of expected stock returns. Stocks that have past high sensitivities to innovations in aggregate volatility have low average returns. We also find that stocks with past high idiosyncratic volatility have abysmally low returns, but this cannot be explained by exposure to aggregate volatility risk. The low returns earned by stocks with high exposure to systematic volatility risk and the low returns of stocks with high idiosyncratic volatility cannot be explained by the standard size, book-to-market, or momentum effects, and are not subsumed by liquidity or volume effects.
Book Synopsis Price-Based Investment Strategies by : Adam Zaremba
Download or read book Price-Based Investment Strategies written by Adam Zaremba and published by Springer. This book was released on 2018-07-25 with total page 325 pages. Available in PDF, EPUB and Kindle. Book excerpt: This compelling book examines the price-based revolution in investing, showing how research over recent decades has reinvented technical analysis. The authors discuss the major groups of price-based strategies, considering their theoretical motivation, individual and combined implementation, and back-tested results when applied to investment across country stock markets. Containing a comprehensive sample of performance data, taken from 24 major developed markets around the world and ranging over the last 25 years, the authors construct practical portfolios and display their performance—ensuring the book is not only academically rigorous, but practically applicable too. This is a highly useful volume that will be of relevance to researchers and students working in the field of price-based investing, as well as individual investors, fund pickers, market analysts, fund managers, pension fund consultants, hedge fund portfolio managers, endowment chief investment officers, futures traders, and family office investors.
Book Synopsis Idiosyncratic Risk and Stock Returns by : Tariq Aziz
Download or read book Idiosyncratic Risk and Stock Returns written by Tariq Aziz and published by . This book was released on 2016 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relation between idiosyncratic risk and stock returns is currently a topic of debate in the academic literature. So far the evidence regarding the relation is mixed. This study aims to investigate the cross-sectional relation between idiosyncratic risk and stock returns in the Indian stock market employing quantile regressions. Using quantile regressions, this study demonstrates that idiosyncratic volatility and stock returns relation is quantile dependent. The relation between idiosyncratic volatility and stock returns is parabolic. The high idiosyncratic risk is associated with high (low) excess returns at the upper (lower) quantile of the conditional distribution. This partially explains the inconclusive evidence on the idiosyncratic volatility and the stock returns relation in the literature.
Book Synopsis Idiosyncratic Volatility and the Cross-Section of Expected Returns by : Turan G. Bali
Download or read book Idiosyncratic Volatility and the Cross-Section of Expected Returns written by Turan G. Bali and published by . This book was released on 2012 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the cross-sectional relation between idiosyncratic volatility and expected stock returns. The results indicate that (i) data frequency used to estimate idiosyncratic volatility, (ii) weighting scheme used to compute average portfolio returns, (iii) breakpoints utilized to sort stocks into quintile portfolios, and (iv) using a screen for size, price and liquidity play a critical role in determining the existence and significance of a relation between idiosyncratic risk and the cross-section of expected returns. Portfolio-level analyses based on two different measures of idiosyncratic volatility (estimated using daily and monthly data), three weighting schemes (value-weighted, equal-weighted, inverse-volatility-weighted), three breakpoints (CRSP, NYSE, equal-market-share), and two different samples (NYSE/AMEX/NASDAQ and NYSE) indicate that there is no robust, significant relation between idiosyncratic volatility and expected returns.
