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
Citations
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Do Investors Overpay for Stocks with Lottery-Like Payoffs? An Examination of the Returns on OTC Stocks
Bjørn Eraker,Mark J. Ready +1 more
TL;DR: The authors study returns on Over-the-Counter stocks and find that the distribution of OTC stock returns is highly positively-skewed: while many of the stocks in their sample become worthless, a few do extremely well.
Journal ArticleDOI
Volatility-Managed Portfolios
TL;DR: In this paper, the authors show that taking less risk when volatility is high produces large alphas, substantially increase factor Sharpe ratios, and produce large utility gains for mean-variance investors.
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Asymmetric Responses to Earnings News: A Case for Ambiguity
TL;DR: The authors empirically examined the role of shocks to macro-uncertainty in shaping the responses of stock market participants to firm-specific earnings news and found that investors placed greater weight on bad news following an increase in macrouncertainity.
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Managerial Overconfidence and Corporate Risk Management
TL;DR: In this paper, the authors examine whether managerial overconfidence can explain the observed discrepancies between the theory and practice of corporate risk management and find that managers increase their speculative activities using derivatives following speculative cash flow gains, while they do not reduce their speculative activity following speculative losses.
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Industry-Specific Human Capital, Idiosyncratic Risk and the Cross-Section of Expected Stock Returns
TL;DR: This article showed that the cross-section of expected stock returns is primarily affected by industry-level rather than aggregate labor income risk, and when human capital is excluded from the asset pricing model, the resulting idiosyncratic risk may appear to be priced.
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.