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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Style Factor Timing: An Application to the Portfolio Holdings of U.S. Fund Managers
TL;DR: In this article, a style rotation model based on quarterly forecasts of style factor returns, across four style categories, generated using market and macroeconomic data, was developed and tested on a sample of U.S. active equity mutual funds.
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The Closed-End Fund Premium Puzzle and Portfolio/Fund Risk Differences
TL;DR: In this paper, the authors investigated whether the returns of closed-end funds behave differently than the returns on the underlying portfolio of securities held by the CEF and found that the difference in risk and performance between the CEFs and their underlying portfolio explain cross-sectional variation in the size of difference between the NAV and the price of the closed end fund.
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A Smiling Bear in the Equity Options Market and the Cross-Section of Stock Returns
TL;DR: In this article, a measure for the convexity of an option-implied volatility curve, called IV-convexity, is proposed as a forward-looking measure of excess tail-risk contribution to the perceived variance of underlying equity returns.
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VIX and Liquidity Premium
Dennis Bams,Iman Honarvar +1 more
TL;DR: In this article, a 3-period theoretical model was proposed to explain why market makers' compensation for supplying liquidity depends on short-term price reversal, and the model showed that market makers charge a higher premium for liquidity provision when the VIX is high.
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Idiosyncratic Volatility and Firm-Specific News: Beyond Limited Arbitrage
TL;DR: In this article, the authors show that the pricing of idiosyncratic volatility is beyond its function as a limit of arbitrage, and they consider evidence at odds with explanations based on difference of investor opinion and investor sentiment.
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.