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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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Investors' Horizons and the Amplification of Market Shocks
TL;DR: In this article, the authors show that during episodes of market turmoil 13F institutional investors with short trading horizons sell their stockholdings to a larger extent than 13F institutions with longer horizons, which creates price pressure for stocks mostly held by short horizon investors.
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Financial Market Dislocations
TL;DR: This paper found that investors demand economically and statistically significant risk premiums to hold financial assets performing poorly during market dislocations, and that the importance of their fluctuations for expected asset returns is significant.
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Does More Information in Stock Price Lead to Greater or Smaller Idiosyncratic Return Volatility
Dong Wook Lee,Mark H. Liu +1 more
TL;DR: In this article, the authors investigated the relation between price informativeness and idiosyncratic return volatility in a multi-asset, multi-period noisy rational expectations equilibrium, and empirically document a U-shaped relation.
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The Joint Cross Section of Stocks and Options
TL;DR: In this article, a cross-section of stock returns is used to predict option-implied volatilities, with stocks with high past returns tending to have call and put option contracts which exhibit increases in implied volatility over the next month, but with decreasing realized volatility.
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Option Implied Volatility, Skewness, and Kurtosis and the Cross-Section of Expected Stock Returns
TL;DR: In this paper, the authors investigated the cross-sectional relation between the market's ex-ante view of a stock's risk and the stock's exante expected return and found that the expected returns are related to both systematic and unsystematic variance risk.
References
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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.