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Idiosyncratic Volatility And Stock Returns
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Book Synopsis Idiosyncratic Volatility and Stock Returns by : Kuntara Pukthuanthong
Download or read book Idiosyncratic Volatility and Stock Returns written by Kuntara Pukthuanthong and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical evidences regarding the association of idiosyncratic volatility and stock returns are inconsistent with the capital asset pricing model (CAPM) which implies that idiosyncratic risk should not be priced because it would be fully eliminated through diversification. Using estimated-EGARCH conditional idiosyncratic volatility of individual stocks across 36 countries from 1973 to 2007, we find that idiosyncratic risk is priced on a significantly positive risk premium for stock returns. The evidence is statistically and economically significant. It overwhelmingly supports the prediction of existing theories that idiosyncratic risk is positively related to expected returns.
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 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 Revisiting Idiosyncratic Volatility and Stock Returns by : Fatma Saryal Sonmez
Download or read book Revisiting Idiosyncratic Volatility and Stock Returns written by Fatma Saryal Sonmez and published by . This book was released on 2013 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper's aim is to revisit the relation between idiosyncratic volatility and future stock returns. There are three key findings: First, we confirm earlier studies which show a negative relation. Further we show that it is the month to month changes in idiosyncratic volatility that produce this observed relation. More specifically, a portfolio of stocks that move from a lower (higher) idiosyncratic volatility quintile to higher (lower) one earns positive (negative) abnormal returns. Eliminating all firm-month observations with idiosyncratic volatility quintile changes, we find a positive relation. Second, we link our findings with corporate related events. Third, we find that after 2000, the idiosyncratic volatility effect disappears.
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 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 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 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 Incomplete Information, Idiosyncratic Volatility and Stock Returns by : Julien Hugonnier
Download or read book Incomplete Information, Idiosyncratic Volatility and Stock Returns written by Julien Hugonnier and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of firm investment under incomplete information that explains why idiosyncratic volatility and stock returns are related. When the unobserved state variable proxies for the business cycles, we show that a properly calibrated version of the model generates a negative relation due to the natural asymmetry in the length of expansions and recessions. We further show that, conditional on earning surprises, the relation between idiosyncratic volatility and stock returns is positive after good news and negative after bad news. This result provides new insights on the nature of stock return predictability.
Book Synopsis Idiosyncratic Volatility, Stock Market Volatility, and Expected Stock Returns by : Hui Guo
Download or read book Idiosyncratic Volatility, Stock Market Volatility, and Expected Stock Returns written by Hui Guo and published by . This book was released on 2005 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 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 Implied Idiosyncratic Volatility and Stock Return Predictability by : Cesario Mateus
Download or read book Implied Idiosyncratic Volatility and Stock Return Predictability written by Cesario Mateus and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the role of volatility risk on stock return predictability. Using 596 stock options traded at the American Stock Exchange and the Chicago Board Options Exchange (CBOE) for the period from January 2001 to December 2010, it examines the relation between different idiosyncratic volatility measures and expected stock returns for a period that involves both the dotcom bubble and the recent financial crisis. First it is showed that implied idiosyncratic volatility is the best stock return predictor among the different volatility measures used. Second, cross-section firm-specific characteristics are important on stock returns forecast. Third, we provide evidence that higher short selling constraints impact negatively stock returns having liquidity the opposite effect.
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 Idiosyncratic Volatility, Momentum, Liquidity, and Expected Stock Returns in Developed and Emerging Markets by : Lorne N. Switzer
Download or read book Idiosyncratic Volatility, Momentum, Liquidity, and Expected Stock Returns in Developed and Emerging Markets written by Lorne N. Switzer and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper re-examines the link between idiosyncratic risk and expected returns for a large sample of firms in both developed and emerging markets. Recent studies using Fama-French three-factor models have shown a negative relationship between idiosyncratic volatility and expected returns for developed markets. This relationship has not been studied to date for emerging markets. This study relates the current-month's idiosyncratic volatility to the subsequent month's stock returns for a sample of both developed and emerging markets expanding benchmark factors by including both a momentum and a systematic liquidity risk component. Using a five-factor model, the results suggest that idiosyncratic risk does not play a role on stock returns for most of the developed markets analyzed. In contrast, the paper shows, for the first time, that idiosyncratic risk is positively related to month-ahead expected returns for many emerging markets for this model.
Book Synopsis Idiosyncratic Volatility, Stock Returns, and Priming Processes by : Nir Chen
Download or read book Idiosyncratic Volatility, Stock Returns, and Priming Processes written by Nir Chen and published by . This book was released on 2017 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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.
