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.

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.

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:

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.

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.

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.

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.

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.

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.

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.

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.

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.

Download or read book Idiosyncratic Volatility Its Expected Variation and the Cross Section of Stock Returns written by Nicole Branger and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the widely documented negative relation between idiosyncratic volatility (IVOL) and expected returns can be explained by the mean reversion of stocks' idiosyncratic volatilities. We use option-implied information to extract the mean reversion speed of IVOL in an almost model-free fashion. This allows us to identify stocks for which past IVOL is a bad proxy for expected IVOL. These stocks solely drive the negative relation, and a long--short portfolio earns a monthly risk-adjusted return of 2.74%, on average. In a horse race, the mean reversion speed is superior to prominent competing explanations of the IVOL puzzle.

Download or read book Portfolio Preferences of Foreign Institutional Investors written by Reena Aggarwal and published by World Bank Publications. This book was released on 2003 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Cross section of Volatility and Expected Returns written by Andrew Ang and published by . This book was released on 2004 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. In addition, we find that stocks with high idiosyncratic volatility relative to the Fama and French (1993) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk. Size, book-to-market, momentum, and liquidity effects cannot account for either the low average returns earned by stocks with high exposure to systematic volatility risk or for the low average returns of stocks with high idiosyncratic volatility"--National Bureau of Economic Research web site.

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.

Download or read book Relation between Time Series and Cross Sectional Effects of Idiosyncratic Variance on Stock Returns written by Hui Guo and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Consistent with the post-1962 U.S. evidence by Ang, Hodrick, Xing, and Zhang [Ang, A., Hodrick, R., Xing Y., Zhang, X., 2006. The cross-section of volatility and expected returns. Journal of Finance 51, 259-299.], we find that stocks with high idiosyncratic variance (IV) have low CAPM-adjusted expected returns in both pre-1962 U.S. and modern G7 data. We also test in three ways the conjecture that IV is a proxy of systematic risk. First, the return difference between low and high IV stocks -- that we dub as IVF -- is a priced factor in the cross-section of stock returns. Second, loadings on lagged market variance and lagged average IV account for a significant portion of variation in average returns on portfolios sorted by IV. Third, the variance of IVF correlates closely with average IV, and the two variables have similar explanatory power for the time-series and cross-sectional stock returns.