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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
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Market Illiquidity and Conditional Equity Premium
TL;DR: In this paper, the authors document that average market-wide effective bid-ask spreads forecast aggregate market returns only when controlling for average idiosyncratic variance, which is robust to standard return predictors, alternative illiquidity measures, and out of sample tests.
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Aggregate Volatility Risk and the Cross-Section of Stock Returns: Australian Evidence
TL;DR: In this article, the authors examined the relation between aggregate volatility risk and the cross-section of stock returns in Australia and found that volatility risk is negatively related to stock returns only when market volatility is rising.
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The Effect of Income Shifting on the Information Environment: Evidence from Two-Stage Least Squares and SFAS 131
Abstract: We examine the information environment consequences that occur when U.S. multinational corporations (MNCs) engage in outbound income shifting. Using a new measure of outbound income shifting that considers evidence of prior outbound shifting and firms’ incentives, we find income shifting increases information asymmetry, private information gathering, and information uncertainty. Cross-sectional tests reveal that the presence of monitoring institutional investors mitigates the information environment consequences of income shifting. Our study provides evidence that significant information environment consequences are associated with tax-motivated income shifting.
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Predicting Extreme Returns and Portfolio Management Implications
TL;DR: In this paper, the authors consider the predictive influence of option implied volatility in such a framework, which they unsurprisingly find to be an important indicator of future extreme price movements, and find that other factors, such as firm age and size, still have additional predictive power of extreme future returns.
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Idiosyncratic Risk and the Cross-Section of RealizedReturns: Reconciling the Aggregate Returns’Predictability Evidence
TL;DR: In this paper, the authors show that there is a direct relationship between the dynamics of the cross-sectional variance of realized returns and the dynamic dynamics of average idiosyncratic variance, and they provide new evidence on the time-series properties and predictive power of idiosyncratic risk on the market return that could not have been obtained with traditional measures.
References
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