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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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Time Horizon Trading and the Idiosyncratic Risk Puzzle
TL;DR: In this article, the authors adopt a wavelet multiresolution analysis to decompose returns distribution for different time scales, showing that the idiosyncratic risk puzzle disappears as the wavelet scale increases (long-term horizons).
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Incomplete Information, Idiosyncratic Volatility and Stock Returns
TL;DR: In this paper, the authors construct a new variable that proxies for this term and show that it explains a signi cant part of the empirical relation between idiosyncratic volatility and stock returns.
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Price Shocks, News Disclosures, and Asymmetric Drifts
Hai Lu,Kevin Q. Wang,Xiaolu Wang +2 more
TL;DR: This article examined how stock price shocks affect future stock returns and found that both large short-term price drops and hikes are followed by negative abnormal returns over the subsequent year, consistent with the conjecture that price shocks are useful indicators of inter-temporal spikes in investor disagreement and investor opinion converges gradually.
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Do Decomposed Financial Ratios Predict Stock Returns and Fundamentals Better
Xiaoquan Jiang,Bong-Soo Lee +1 more
TL;DR: The authors decompose financial ratios into a cyclical component and a stochastic trend component, and find both components predict excess returns and fundamentals, consistent with present value models, in particular in long horizons.
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Investing in Systematic Factor Premiums
TL;DR: In this paper, the authors investigated the effect of factor investing on the performance of the Norwegian Government Pension Fund and concluded that factor investing must be part of the strategic asset allocation of institutional investors.
References
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