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
Citations
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Expected Return-Idiosyncratic Risk Relation: An Investigation with Alternative Factor Models
TL;DR: In this paper, the authors investigated the relation between idiosyncratic risk and expected return by estimating idiosyncratic volatility in different factor models including the downside and upside market models and found that the relation may be non-linear.
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The Multinational Return Premium: Investor's Perspective
TL;DR: In this article, the authors investigate whether the return difference is driven by risk or known asset pricing anomalies, and find that none of them can fully explain the return premium of multinationals.
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Idiosyncratic Risk and the Cross-Section of European Real Estate Stock Returns
TL;DR: In this article, the role of idiosyncratic risk in the pricing of European real estate equities was examined in both an unconditional and a conditional framework. And the relationship between risk and real estate equity returns in the conditional setting discloses the positive pricing in up-markets and negative pricing in down-markets.
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Foreign Exchange Volatility is Priced in Equities
TL;DR: The authors found that standard asset pricing models fail to explain the significantly negative delta hedging errors from buying options on foreign exchange futures, and that the volatility of the JPY/USD exchange rate predicts stock returns and is priced in the cross-section of stock returns.
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Investor Heterogeneity, Sentiment, and Skewness Preference in Options Market
TL;DR: In this paper, Bali and Murray (2013) investigated skewness preferences when investors with heterogeneous expectations hold long-skewness positions and found that when investors are pessimistic, their overconfidence produces a downward bias which explains their negative (positive) preference.
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.