Open AccessPosted Content
The Cross-Section of Volatility and Expected Returns
TLDR
This paper examined the pricing of aggregate volatility risk in the cross-section of stock returns and found that stocks with high sensitivities to innovations in aggregate volatility have low average returns, and that stock with high idiosyncratic volatility relative to the Fama and French (1993) model have abysmally low return.Abstract:
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 volatilityread more
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Bond Yield Volatility Innovation and Equity Risk Premium
TL;DR: In this paper, the authors show that the monthly innovation of the 10-year Treasury note implied volatility is a strong predictor for short-run aggregate stock market returns, and that a one standard deviation increase of the innovation of bond yield volatility predicts a 1% decrease of one-month-ahead excess S&P 500 returns.
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The Pricing of Accrual Quality
TL;DR: In this paper, the authors find a strong and long-lasting positive relation between the accrual quality measure of Dechow and Dichev (2002) (DD) and future returns, showing that a hedge portfolio that goes long in the lowest decile and short in the highest decile generates an annualized, risk-adjusted return in the order of 10% from one-month to five-year horizons.
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Preference for Positive Skewness and Expected Stock Returns
Turan G. Bali,Nusret Cakici +1 more
TL;DR: In this paper, the role of skewness preference in cross-sectional pricing of NYSE, AMEX, and NASDAQ stocks over the long sample period of January 1926-December 2005 as well as two subsamples was investigated.
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Short Interest and Lottery Stocks
Kelley Bergsma,Jitendra Tayal +1 more
TL;DR: In this paper, the authors find that short interest-related mispricing is strongest among stocks with the most lottery-like characteristics, which are preferred by retail investors, and suggest that higher transactions costs among lottery stocks impedes arbitrage in short interest related mis-pricing, particularly for low RSI stocks.
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Belief Heterogeneity in the Option Markets and the Cross-Section of Stock Returns
Paul Borochin,Yanhui Zhao +1 more
TL;DR: In this article, the authors find support for interpreting the standard deviations of these option-based measures as forward-looking proxies of heterogeneous beliefs, consistent with the Miller (1977) theoretical result that divergence of investor opinions leads to lower expected returns.
References
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Posted Content
The Capital Asset Pricing Model: Some Empirical Tests
TL;DR: In this paper, the authors present some additional tests of the mean-variance formulation of the asset pricing model, which avoid some of the problems of earlier studies and provide additional insights into the nature of the structure of security returns.
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No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns
TL;DR: In this paper, the generalized autoregressive conditionally heteroskedastic (GARCH) model of returns is modified to allow for volatility feedback effect, which amplifies large negative stock returns and dampens large positive returns, making stock returns negatively skewed and increasing the potential for large crashes.
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The Impact of Jumps in Volatility and Returns
TL;DR: In this article, the authors examined a class of continuous-time models that incorporate jumps in returns and volatility, in addition to diffusive stochastic volatility, and developed a likelihood-based estimation strategy and provided estimates of model parameters, spot volatility, jump times and jump sizes using both S&P 500 and Nasdaq 100 index returns.
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Intertemporal Asset Pricing Without Consumption Data
TL;DR: In this article, a new way to generalize the insights of static asset pricing theory to a multi-period setting is proposed, which uses a loglinear approximation to the budget constraint to substitute out consumption from a standard intertemporal asset pricing model.
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Liquidity Risk and Expected Stock Returns
TL;DR: This article investigated whether market-wide liquidity is a state variable important for asset pricing and found that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity.