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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Pricing Kernels with Stochastic Skewness and Volatility Risk
TL;DR: In this article, the authors derived pricing kernels in which the market volatility is endogenously determined using the Taylor expansion series of the representative investor's marginal utility, and showed that the price of market volatility risk is restricted by the investor's risk aversion and skewness preference.
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Options-Implied Variance and Future Stock Returns
TL;DR: In this paper, a negative relation between options-implied variance and future stock returns was found for stocks with more stringent short-sale constraints or when shorting stocks becomes more difficult.
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'Sleeping with the Enemy' or 'An Ounce of Prevention': Sovereign Wealth Fund Investments and Market Destabilization
TL;DR: In this paper, the effect of sovereign wealth fund (SWF) investment on return and volatility, both for the target firm and the local market index, has been investigated, and the authors find evidence of both a reduction of target returns and risk, but find that risk is not sufficiently reduced to offset the change in return.
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A New Anomaly: The Cross-Sectional Profitability of Technical Analysis
Yufeng Han,Ke Yang,Guofu Zhou +2 more
TL;DR: In this article, an application of a moving average timing strategy of technical analysis to portfolios sorted by volatility generates investment timing portfolios that often outperform the buy-and-hold strategy substantially.
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Idiosyncratic Risk Innovations and the Idiosyncratic Risk-Return Relation
Mark Rachwalski,Quan Wen +1 more
TL;DR: In this article, the authors show that stocks with increases in idiosyncratic risk tend to earn low subsequent returns for a few months, while stocks with high risk stocks eventually earn persistently high returns.
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.