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Idiosyncratic Return Volatility In The Cross Section Of Stocks
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Book Synopsis Idiosyncratic Return Volatility in the Cross-section of Stocks by : Namho Kang
Download or read book Idiosyncratic Return Volatility in the Cross-section of Stocks written by Namho Kang and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uncovers the changes in the cross-sectional distribution of idiosyncratic volatility of stocks over the period 1963--2008. The contribution of the top decile to the total market idiosyncratic volatility increased, while the contribution of the bottom decile decreased. We introduce a simple theoretical model showing that larger capital of Long/Short-Equity funds further exacerbates large idiosyncratic shocks but attenuates small idiosyncratic shocks. This effect is stronger for more illiquid stocks. Time-series and cross-sectional results are consistent with the predictions of the model. The results are robust to industry affiliation, stock liquidity, firm size, firm leverage, as well as sign of price change. These findings highlight the roll of hedge funds and other institutional investors in explaining the dynamics of extreme realizations in the cross-section of returns.
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.
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 Anchoring Bias Idiosyncratic Volatility and the Cross-section of Stock Returns by : Cedric T. Luma Mbanga
Download or read book Anchoring Bias Idiosyncratic Volatility and the Cross-section of Stock Returns written by Cedric T. Luma Mbanga and published by . This book was released on 2015 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Cross-section of Expected Stock Returns and Components of Idiosyncratic Volatility by : Seyed Reza Tabatabaei Poudeh
Download or read book The Cross-section of Expected Stock Returns and Components of Idiosyncratic Volatility written by Seyed Reza Tabatabaei Poudeh and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relationship between stock returns and components of idiosyncratic volatility-two volatility and two covariance terms- derived from the decomposition of stock returns variance. The portfolio analysis result shows that volatility terms are negatively related to expected stock returns. On the contrary, covariance terms have positive relationships with expected stock returns at the portfolio level. These relationships are robust to controlling for risk factors such as size, book-to-market ratio, momentum, volume, and turnover. Furthermore, the results of Fama-MacBeth cross-sectional regression show that only alpha risk can explain variations in stock returns at the firm level. Another finding is that when volatility and covariance terms are excluded from idiosyncratic volatility, the relation between idiosyncratic volatility and stock returns becomes weak at the portfolio level and disappears at the firm level.
Book Synopsis Idiosyncratic Volatility and Cross-Section of Stock Returns by : Prashant Sharma
Download or read book Idiosyncratic Volatility and Cross-Section of Stock Returns written by Prashant Sharma and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The present study examines the cross-sectional pricing ability of idiosyncratic volatility (IV) in Indian stock market and investigates the relationship amongst expected idiosyncratic volatility (EI), unexpected idiosyncratic volatility (UI), and cross-section of stocks returns. The study uses ARIMA (2, 0, 1) model to IV into EI and UI. The stocks returns are regressed on IV, EI and UI using Newey-West (1987) corrections, in order to investigate their empirical relationship. The study finds that IV is positively related with stock returns. Further the IV significantly explains the cross-section of stock returns in Indian context. After imposing control over UI, as it is highly correlated with unexpected returns, the inter-temporal relationship between EI and expected returns turns out to be positive.
Book Synopsis Cross-Section of Option Returns and Idiosyncratic Stock Volatility by : Jie Cao
Download or read book Cross-Section of Option Returns and Idiosyncratic Stock Volatility written by Jie Cao and published by . This book was released on 2016 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents a robust new finding that delta-hedged equity option return decreases monotonically with an increase in the idiosyncratic volatility of the underlying stock. This result can not be explained by standard risk factors. It is distinct from existing anomalies in the stock market or volatility-related option mispricing. It is consistent with market imperfections and constrained financial intermediaries. Dealers charge a higher premium for options on high idiosyncratic volatility stocks due to their higher arbitrage costs. Controlling for limits to arbitrage proxies reduces the strength of the negative relation between delta-hedged option return and idiosyncratic volatility by about 40%.
Book Synopsis The Cross-Section of Stock Return and Volatility by :
Download or read book The Cross-Section of Stock Return and Volatility written by and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: There has been increasing research on the cross-sectional relation between stock return and volatility. Conclusions are, however, mixed, partially because volatility or variance is modeled or parameterized in various ways. This paper, by using the Jiang and Tian (2005)'s model-free method, estimates daily option implied volatility for all US individual stocks from 1996:01 to 2006:04, and then employs this information to extract monthly volatilities and their idiosyncratic parts for cross-sectional regression analyses. We follow the Fama and French (1992) cross-sectional regression procedure and show that each of the 4 monthly measures of change of total volatility, total volatility, expected idiosyncratic variance, and expected idiosyncratic volatility is a negative priced factor in the cross-sectional variation of stock returns. We also show that the negative correlation between return and total volatility or expected idiosyncratic variance or expected idiosyncratic volatility strengthens as leverage increases or credit rating worsens. However, leverage does not play a role in the relation between return and change of total volatility. Finally, responding to recent papers, we show that the investor sentiment does not have a significant impact on the cross- sectional relation between return and volatility.
Book Synopsis Idiosyncratic Risk and the Cross-Section of Expected Stock Returns by : Fangjian Fu
Download or read book Idiosyncratic Risk and the Cross-Section of Expected Stock Returns written by Fangjian Fu and published by . This book was released on 2013 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theories such as Merton (1987, Journal of Finance) predict a positive relation between idiosyncratic risk and expected return when investors do not diversify their portfolio. Ang, Hodrick, Xing, and Zhang (2006, Journal of Finance 61, 259-299) however find that monthly stock returns are negatively related to the one-month lagged idiosyncratic volatilities. I show that idiosyncratic volatilities are time-varying and thus their findings should not be used to imply the relation between idiosyncratic risk and expected return. Using the exponential GARCH models to estimate expected idiosyncratic volatilities, I find a significantly positive relation between the estimated conditional idiosyncratic volatilities and expected returns. Further evidence suggests that Ang et al.'s findings are largely explained by the return reversal of a subset of small stocks with high idiosyncratic volatilities.
Book Synopsis A Time-varying Premium for Idiosyncratic Risk by : Daruo Xie
Download or read book A Time-varying Premium for Idiosyncratic Risk written by Daruo Xie and published by . This book was released on 2015 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Merton (1987) predicts that idiosyncratic risk can be priced. I develop a simple equilibrium model of capital markets with information costs in which the idiosyncratic risk premium depends on the average level of idiosyncratic volatility. This dependence suggests that the idiosyncratic risk premium varies over time. I find that in U.S. markets, the covariance between stock-level idiosyncratic volatility and the idiosyncratic risk premium explains future stock returns. Stocks in the highest quintile of the covariance between the volatility and risk premium earn an average 3-factor alpha of 70 bps per month higher than those in the lowest quintile.
Book Synopsis Idiosyncratic Volatility, Aggregate Volatility Risk, and the Cross-section of Returns by : Alexander Barinov
Download or read book Idiosyncratic Volatility, Aggregate Volatility Risk, and the Cross-section of Returns written by Alexander Barinov and published by . This book was released on 2008 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Information Content in Implied Idiosyncratic Volatility and the Cross-Section of Stock Returns by : Dean Diavatopoulos
Download or read book The Information Content in Implied Idiosyncratic Volatility and the Cross-Section of Stock Returns written by Dean Diavatopoulos and published by . This book was released on 2014 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options to examine the relation between idiosyncratic volatility and future returns. We find a strong positive link between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book-to-market equity firms.
Book Synopsis Volatility and the Cross-Section of Equity Returns by : Ruslan Goyenko
Download or read book Volatility and the Cross-Section of Equity Returns written by Ruslan Goyenko and published by . This book was released on 2020 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: A number of papers document a strong negative relation between idiosyncratic volatility and risk-adjusted stock returns. Using IHS Markit data on indicative borrowing fees, we show that stocks with high idiosyncratic volatility are far more likely to be hard-to-borrow than stocks with low idiosyncratic volatility. When hard-to-borrow stocks are excluded, the relation between idiosyncratic volatility and stock returns disappears. The relation between idiosyncratic volatility and stocks returns is more accurately described as a relation between being hard-to-borrow and stock returns.
Book Synopsis Idiosyncratic Return Volatility, Cash Flows, and Product Market Competition by : Paul J. Irvine
Download or read book Idiosyncratic Return Volatility, Cash Flows, and Product Market Competition written by Paul J. Irvine and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past 40 years, the volatility of the average stock return has drastically outpaced total market volatility. Thus, idiosyncratic return volatility has dramatically increased. We estimate this increase to be 6% per year. Consistent with an efficient market, this result is mirrored by an increase in the idiosyncratic volatility of fundamental cash flows. We argue that these findings are attributable to the more intense economy-wide competition. Various cross-sectional and time-series tests support this idea. Economic competitiveness facilitates reinterpretation of the results from the cross-country R2 literature, as well as the US idiosyncratic risk literature.
Book Synopsis Cross-Sectional Variation in Stock Returns by : Matthew I. Spiegel
Download or read book Cross-Sectional Variation in Stock Returns written by Matthew I. Spiegel and published by . This book was released on 2006 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: The roles played by idiosyncratic risk and liquidity in determining stock returns have recently received a great deal of attention. However, recent empirical tests have not examined the interaction between these two factors. As others have shown (and this paper confirms) stocks idiosyncratic risk and liquidity are negatively correlated. To what extent then is each variable responsible for the observed cross sectional patterns in stock returns? Overall, using monthly data, the paper finds that stock returns are increasing with the level of idiosyncratic risk and decreasing in a stock's liquidity. However, while both liquidity and idiosyncratic risk play a role in determining returns, the impact of idiosyncratic risk is much stronger and often eliminates liquidity's explanatory power. The point estimates indicate that a one standard deviation change in idiosyncratic risk has between 2.5 and 8 times the impact of a corresponding change in liquidity on cross sectional expected returns.
Book Synopsis Idiosyncratic Risk and Reit Returns by : Joseph T. L. Ooi
Download or read book Idiosyncratic Risk and Reit Returns written by Joseph T. L. Ooi and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The volatility of a stock returns can be decomposed into market and firm-specific volatility, with the former commonly known as systematic risk and the later as idiosyncratic risk. This study examines the relevance of idiosyncratic risk in explaining the monthly cross-sectional returns of REIT stocks. Contrary to the CAPM theory, a significant positive relationship is found between idiosyncratic volatility and the cross-sectional returns. This suggests that firm-specific risk matters in REIT pricing. The regression results further show that once idiosycratic risk is controlled for in the asset-pricing model, the size and book-to-market equity ratio factors ceased to be significant. The explanatory power of the momentum effect remains robust in the presence of idiosyncratic risk.
Book Synopsis Earnings Announcement Idiosyncratic Volatility and the Cross-Section of Stock Returns by : Cameron Truong
Download or read book Earnings Announcement Idiosyncratic Volatility and the Cross-Section of Stock Returns written by Cameron Truong and published by . This book was released on 2015 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document a significant positive relation between earnings announcement idiosyncratic volatility and stock returns in the 10-day window before future earnings announcements. The average of risk-adjusted return differences between stocks with the highest earnings announcement idiosyncratic volatility and stocks with the lowest earnings announcement idiosyncratic volatility exceeds 100 basis points in the 10 days leading up to the earnings announcements. The pricing of earnings announcement idiosyncratic volatility is asymmetric where only idiosyncratic volatility based on positive stock returns is priced. This is consistent with the argument that investors have a preference for stocks with large payoffs during earnings announcements.
