Download or read book Idiosyncratic Z Score Reversion to Fair Value and the Cross Section of US Stocks Daily Returns written by Xin Heng and published by . This book was released on 2014 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We construct a risk adjusted version of return reversal within the US stock universe, which we name idiosyncratic Z score (IZ). Stock ranking in the IZ portfolios is based on the ratio of individual stocks' idiosyncratic return and its idiosyncratic risk. We link IZ with the stocks' demand shocks that are not information driven - a theory developed by Greenwood (2005). During our study period, the IZ factor exhibits excellent risk adjusted excess return. More importantly, our empirical result shows that there is systematic information embedded in IZ that is independent of other well-known pricing factors like value and momentum. Factor loading of IZ on Fama-French portfolios and industrial portfolios is shown to be statistically significant, and its magnitude is on the same order as SMB and HML factors. Therefore, we do not reject the notion that IZ represents a systematic risk factor that can in part explain the cross section of US stocks' daily returns. We also experiment with several different schemes to construct the IZ factor and the results remain to be robust.

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.

Download or read book Higher Idiosyncratic Moments and the Cross section of Expected Stock Returns written by John Byong Tek Lee and published by . This book was released on 2008 with total page 250 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Unusual News Flow and the Cross Section of Stock Returns written by Turan G. Bali and published by . This book was released on 2016 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that stocks that experience sudden increases in idiosyncratic volatility underperform otherwise similar stocks in the future, and we propose that this phenomenon can be explained by the Miller (1977) conjecture. We show that volatility shocks can be traced to the unusual firm-level news flow, which temporarily increases the level of investor disagreement about the firm value. At the same time, volatility shocks pose a barrier to short selling, preventing pessimistic investors from expressing their views. In the presence of divergent opinions and short selling constraints, prices end up initially reflecting optimistic views but adjust down in the future as investors' opinions converge.

Download or read book Revisiting the Price Effect in US Stocks written by Paul Geertsema and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nominal price does not predict average stock returns in the cross-section of US stocks using the NYSE break-pointed, value-weighted portfolio formation approach adopted in the recent asset-pricing literature. The evidence in support of return predictability is largely constrained to small stocks, with a “low price effect” more prevalent up to the 1970's and a “high price effect” more prevalent from 1980 onwards. Among the six asset-pricing models tested in our study, only the Fama-French 3-factor model consistently yields positive alphas for trading strategies based on nominal stock prices. Full paper available at https://doi.org/10.1016/j.frl.2019.03.017.

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.

Download or read book The Cross Section of Expected Stock Returns Revisited written by Jean-Paul Sursock and published by . This book was released on 2000 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Cross Section of Common Stock Returns written by Donald B. Keim and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A growing number of empirical studies suggest that betas of common stocks do not adequately explain cross-sectional differences in stock returns. Instead, a number of other variables (e.g., size, ratio of book to market, earnings/price) that have no basis in extant theoretical models seem to have significantly predictive ability. Some interpret the findings as evidence of market efficiency. Others argue that the Capital Asset Pricing Model is an incomplete description of equilibrium price formation and these variables are proxies for additional risk factors. In this paper we review the evidence on the cross-sectional behavior of common stock returns on the U.S. and other equity markets around the world. We also report some new evidence on these cross-sectional relations using data from both U.S. and international stock markets. We find, among other results, that although the return premia associated with these ad hoc variables are significant in most international stock markets, the premia are uncorrelated across markets. The accumulating evidence prompts the following question: If these return premia occur primarily in January and are uncorrelated across major international equity markets, is it reasonable to characterize them as compensation for risk?

Download or read book The Second Moment Matters Cross Sectional Dispersion of Firm Valuations and Expected Stock Returns written by Danling Jiang and published by . This book was released on 2013 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioral theories predict that firm valuation dispersion in the cross section (ldquo;dispersionrdquo;) measures aggregate overpricing caused by investor overconfidence and should be negatively related to expected aggregate returns. This paper develops and tests these hypotheses. Consistent with the model predictions, I find that measures of dispersion are positively related to aggregate valuations, trading volume, idiosyncratic volatility, past market returns, and current and future investor sentiment indexes. Dispersion is a strong negative predictor of subsequent shortand long-term market excess returns. Market beta is positively related to stock returns when the beginning-of-period dispersion is low and this relationship reverses when initial dispersion is high. A simple forecast model based on dispersion significantly outperforms a naive model based on historical equity premium in out-of-sample tests and the predictability is stronger in economic downturns.

Download or read book Unexpected Returns written by Ed Easterling and published by . This book was released on 2005 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt: Before you read any how-to investment books or seek financial advice, read Unexpected Returns, the essential resource for investors and investment professionals who want to understand how and why the financial markets are not the same now as they were in the 1980s and 1990s. In addition to explaining the fundamentals, this book takes you on a graphic journey through the seasons of the market, tying together economics and finance to explain the stock market's cycles. Using comprehensive full-color charts and graphs, it offers an in-depth exploration of what has changed over the past five years - and what you can do about it to avoid disappointment with your investments. This unique combination of investment science and investment art will enable you to differentiate between irrational hope and a rational view of the current financial markets. Based on years of meticulous research, it provides the sensible conclusions that will drive your future investment choices and give you the confidence to rely on your investment outlook, whatever your financial strategy. Book jacket.

Download or read book The Cross Section of Stock Returns written by Stijn Claessens and published by . This book was released on 2016 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several factors besides m ...

Download or read book Excess Returns in the Cross Section of US Equities written by Hesu Yang and published by . This book was released on 2013 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a detailed investigation of interaction effects, calendar and time-of-day effects, and industry-aggregation returns of various cross-sectional biases in the literature using a WLS Fama-Macbeth regression methodology on daily returns in the US equity markets from 1982 to 2011 and on intraday returns from 1993 to 2007. Among our findings regarding return effects are that 1) the reversal-momentum-reversal pattern in the short-, medium-, and long-term is highly variable by month, that 2) the industry momentum effect, as initially reported in Moskowitz and Grinblatt (1999) has largely disappeared according to the given methodology, and that 3) while intraday cross-sectional return variation displays periodicity effects as described by Heston, Korajczyk and Sadka (2010), the return structure varies significantly by time of day, unlike their report. Additionally, we also find that the “linearity” of a stock's past returns, as well as the skewness of the returns, have power in predicting the cross-section of stock returns; the results for skewness provide some empirical support for the results of Barberis and Huang (2008). For the size, value, risk, and turnover factors that we test, returns are generally much stronger in January than in other months, although industry aggregates general show little predictive power (with a few exceptions), echoing the results of Asness, Porter, and Stevens (2000). Finally, we implement a testing scheme that evaluates returns to portfolios that capture some of the pricing biases, taking into account various real-world constraints and trading costs. We find that 1) there are significant risk-adjusted returns to semi-active “structured” portfolios that arbitrage the noted biases (net of trading costs, given the constraints), especially after 2002, but that 2), using a short-scale time frame for calculating IR encourages benchmark hugging and suggests a semi-passive portfolio over active portfolios.

Download or read book Two Essays on the Cross section of Stock Returns written by Zhuo Tan and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays that address issues related to the cross-section of stock returns. The first essay documents that actively managed mutual funds invest disproportionately in stocks with high historical risk-adjusted returns (alpha). This alpha-chasing behavior has a destabilizing effect on stock price. Specifically, low-alpha stocks earn higher subsequent returns than high-alpha stocks up to two months following portfolio formation—i.e. alpha is not persistent, but reverses. Consistent with liquidity-based price pressure, I find that low- (high)-alpha stocks that are heavily traded by mutual funds exhibit strong subsequent return reversals. Further analysis finds that trades from a few large funds are the primary source of this trading. However, there is no evidence to support the view that herding by fund managers explains fund managers’ preference for high-alpha stocks. The reason why managers of large mutual funds chase high-alpha stocks when alpha is not persistent remains a puzzle. The second essay shows that a better measure of mispricing confirms the primary prediction of the limits-of-arbitrage hypothesis that high levels of idiosyncratic risk prevent arbitrage activity. Rather than using returns to size, B/M and momentum portfolios, I construct a mispricing measure based on the difference between a stock’s price and its intrinsic value estimated using the residual income model of Ohlson (1995). I confirm that this measure explains future returns. I then use it and idiosyncratic return volatility to proxy for mispricing and arbitrage risk, respectively. I find that expected returns to undervalued (overvalued) stocks monotonically increase (decrease) with idiosyncratic risk. These findings support the limits-of-arbitrage hypothesis and that idiosyncratic risk is an impediment to arbitrage.

Download or read book The Cross Section of Stock Returns written by Dasgupta and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Cross Section of Stock Returns Evidence from Emerging Markets written by Susmita Dasgupta and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

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.

Download or read book Market Liquidity written by Thierry Foucault and published by Oxford University Press. This book was released on 2023 with total page 531 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--