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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Does Disagreement Explain Financial Anomalies
Deok Hyeon Lee,Tong Suk Kim +1 more
TL;DR: In this article, the authors find that the underperformance of short legs of the anomalies is most pronounced among high disagreement stocks, and stronger disagreement effect among stocks in the short legs.
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Using the Implied Cost of Capital to Assess the Impact of Heightened Capital Requirements
TL;DR: The authors examined the implied cost of capital (ICC) as a measure of cost of equity and found a stronger association between leverage and the implied risk implied by relatively low levels of capital after the financial crisis.
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Asset Pricing with a Bank Risk Factor
João Pedro Pereira,António Rua +1 more
TL;DR: In this article, the authors consider a two-factor pricing model, where the traditional market excess return and the second factor is the change in the average distance to default of the banking sector and find that this bank factor is priced in the cross section of U.S. non-financial firms.
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Attention on Volatility and Options
Yan Xu,Shu Yan,Yuzhao Zhang +2 more
TL;DR: In this paper, the authors investigated the impact of Google search frequency on option trading and option pricing as well as stock return volatility and found a significant positive relation between Google search volume and future option trading activity of retail investors.
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Disentangled correlations and the risk-return tradeoff
TL;DR: In this article, the authors evaluate the impact of co-movement in equity return correlations on the equity risk-return trade-off by applying a principal components analysis on conditional correlations.
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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.