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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
Citations
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Semiparametric Inference in a GARCH-in-Mean Model
TL;DR: In this article, a new semiparametric estimator for an empirical asset pricing model with general nonparametric risk-return tradeoff and a GARCH process for the underlying volatility is introduced.
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The Second Moment Matters! Cross-Sectional Dispersion of Firm Valuations and Expected Stock Returns
TL;DR: This article found that measures of dispersion are positively related to aggregate valuations, trading volume, idiosyncratic volatility, past market returns, and current and future investor sentiment indexes, and that dispersion is a strong negative predictor of subsequent short and long-term market excess returns.
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Crash Risk in Individual Stocks
TL;DR: In this article, the authors implemented a novel methodology to extract crash risk premia from options and stock markets, showing that investors are willing to pay high insurance to hedge against crashes in individual stocks.
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From Time Varying Risk-Aversion to Anomalies in Market Moments’ Risk Premia
TL;DR: In this paper, the authors refer to these counter-intuitive prices of risk as the anomalies in the market moments' risk premia, and show that these anomalies only exist in low risk-aversion periods.
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The Shrinking Space for Anomalies
George J. Jiang,Andrew Zhang +1 more
TL;DR: In this article, the authors examine whether the anomalies pervasive in different stock samples and do factor models provide valid inferences on anomalous returns and provide evidence that commonly used factor models have limited explanatory power of stock returns and thus may offer invalid inference on abnormal returns.
References
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Posted Content
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.