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The Cross-Section of Volatility and Expected Returns
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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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Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle
TL;DR: In this paper, the authors combine arbitrage asymmetry with the arbitrage risk represented by idiosyncratic volatility (IVOL) to explain the negative relation between IVOL and average return.
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Roughing up Beta: Continuous versus Discontinuous Betas and the Cross Section of Expected Stock Returns
TL;DR: This article investigated how individual equity prices respond to continuous and jumpy market price moves and how these different market price risks, or betas, are priced in the cross section of expected stock returns.
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Style Investing, Comovement and Return Predictability
Sunil Wahal,M. Deniz Yavuz +1 more
TL;DR: This article found that high comovement winner (loser) portfolios have significantly higher (lower) future returns than low comovements winner (winner) winner (loss) portfolios, and that long-horizon reversals are larger for high-comovement portfolios.
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Retail Short Selling and Stock Prices
Eric K. Kelley,Paul C. Tetlock +1 more
TL;DR: In this article, the authors provided the first large-scale evidence that retail short selling predicts negative stock returns, using proprietary data on millions of trades by retail investors, and found that retail Short selling best predicts returns in small stocks and those that are heavily bought by other retail investors.
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Consumption Volatility Risk
TL;DR: In this article, the authors show that time-variation in macroeconomic uncertainty affects asset prices, and that exposure to consumption volatility risk predicts future returns, generating a spread across quintile portfolios in excess of 7% annually.
References
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