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Author: Bin Liu
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This study examines the importance of idiosyncratic volatility in asset pricing for Australian stock returns from January 2002 to December 2010. Inspired by work from the early 1990s which found that portfolios constructed to mimic common risk factors explained significant variations in US stock returns, we construct an idiosyncratic volatility mimicking factor to explore the explanatory power of this factor in the Australian stock market. Our results indicate that (a) the idiosyncratic volatility mimicking factor is priced and positively related to the stock returns for the sample period, (b) the explanatory power of the idiosyncratic volatility mimicking factor remains robust in both time-series and cross-sectional analysis, and (c) big size stocks are systematically riskier than small size stocks.
Author: Bin Liu
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This study examines the importance of idiosyncratic volatility in asset pricing for Australian stock returns from January 2002 to December 2010. Inspired by work from the early 1990s which found that portfolios constructed to mimic common risk factors explained significant variations in US stock returns, we construct an idiosyncratic volatility mimicking factor to explore the explanatory power of this factor in the Australian stock market. Our results indicate that (a) the idiosyncratic volatility mimicking factor is priced and positively related to the stock returns for the sample period, (b) the explanatory power of the idiosyncratic volatility mimicking factor remains robust in both time-series and cross-sectional analysis, and (c) big size stocks are systematically riskier than small size stocks.
Author: Paul Brockman
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Book Description
Recent research on idiosyncratic volatility has documented three main empirical findings. First, Campbell, Lettau, Malkiel, and Xu (2001) show that idiosyncratic volatility exhibits an upward trend between 1962 and 1997. Second, Goyal and Santa-Clara (2003) find that aggregate measures of idiosyncratic volatility predict one-month-ahead excess market returns from 1962 to 1999. Third, Ang, Hodrick, Xing, and Zhang (2006) report a negative and significant relation between idiosyncratic volatility and cross-sectional stock returns from 1963 to 2000. We re-examine these three findings using a 37-year holdout sample of daily returns from 1926 to 1962. We find robust empirical evidence of (1) a statistically significant downward trend in idiosyncratic volatility, (2) an insignificant relation between average idiosyncratic volatility and one-month-ahead excess market returns, and (3) a highly significant inverse relation between idiosyncratic volatility and cross-sectional stock returns. These results shed new light on the time-series behavior and pricing of idiosyncratic volatility.
Author: Joëlle Miffre
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
This article examines the role of idiosyncratic volatility in explaining the cross-sectional variation of size- and value-sorted portfolio returns. We show that the premium for bearing idiosyncratic volatility varies inversely with the number of stocks included in the portfolios. This conclusion is robust within various multifactor models based on size, value, past performance, liquidity and total volatility and also holds within an ICAPM specification of the risk-return relationship. Our findings thus indicate that investors demand an additional return for bearing the idiosyncratic volatility of poorly-diversified portfolios.
Author: Roger G. Ibbotson
Publisher:
ISBN: 9781556232312
Category : Actions (Titres de société) - Prix - Prévision
Languages : en
Pages : 202
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Book Description
Author: Turan G. Bali
Publisher: John Wiley & Sons
ISBN: 1118589475
Category : Business & Economics
Languages : en
Pages : 512
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Book Description
“Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Author: Ali Boloor
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
We use simultaneous data from equity, index and option markets in order to estimate a single-factor market model in which idiosyncratic volatility is allowed to be priced. We model the index dynamics' physical distribution as a mean-reverting stochastic volatility process as in Heston (1993), and the equity returns as single-factor models with stochastic idiosyncratic volatility terms. We derive theoretically the underlying assets' risk-neutral distributions, and we estimate the parameters of both P and Q distributions using a joint likelihood function. We document the existence of a common factor structure in option implied idiosyncratic variances. We show that the average idiosyncratic variance, which proxies for the common factor, is priced in the cross section of equity returns, and that it reduces the pricing error when added to the Fama-French model. We find that the idiosyncratic volatilities differ under the P and Q measures, and we estimate the price of this idiosyncratic volatility risk, which turns out to be significantly different from zero for all the stocks in our sample. We construct portfolios that only load on the idiosyncratic variance, and we propose a measure of idiosyncratic variance risk premium. Further, we show that these premiums are not explained by the usual equity risk factors. Finally, we explore the implications of our results for the estimation of the conditional equity betas.
Author: Bernard Herskovic
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages : 59
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Book Description
We show that firms' idiosyncratic volatility obeys a strong factor structure and that shocks to the common factor in idiosyncratic volatility (CIV) are priced. Stocks in the lowest CIV-beta quintile earn average returns 6.4% per year higher than those in the highest quintile. We provide evidence that the CIV factor is correlated with income risk faced by households. These three facts are consistent with a canonical incomplete markets heterogeneous-agent model. In the model, CIV is a priced state variable because an increase in idiosyncratic firm volatility raises the typical investor's marginal utility when markets are incomplete. The calibrated model matches the high degree of comovement in idiosyncratic volatilities, the CIV-beta return spread, and several other asset price moments.
Author: Zhentao Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
Purpose: The current research is to investigate the time series behavior of idiosyncratic volatility (IVOL) and its role in asset pricing in France in a twenty-year testing period. Design/methodology/approach: We test for the presence of trends in aggregate idiosyncratic and market volatility using Bunzel and Vogelsang's (2005) t-dan test. We follow Bekaert et al. (2012) to test for regime shifts of both aggregate idiosyncratic and market volatilities. And then, we employ portfolio level analysis and cross-sectional univariate Fama-MacBeth regressions to examine the relationship between IVOL and cross-sectional stock returns in French stock market.Findings: First, we find that both idiosyncratic and market volatility do not exhibit long-term trends. Instead, their patterns are consistent with regime switching behavior. Second, though we initially find a strong significant negative IVOL effect in the French stock market which is robust in bi-variate Fama-MacBeth regressions, the negative IVOL effect is becoming marginal significant when we control for SIZE, BM, momentum, and short-term reversal simultaneously. Our new evidence suggests that there is a marginal IVOL effect in the French stock market adding to the increasing number of studies questioning the ubiquity of the negative IVOL puzzle.Originality/value: First, we present the first empirical evidence on examining the trends of both aggregate idiosyncratic and market volatilities, and the pricing role of IVOL in French stock market. We draw an attention for both academia and practitioners on an individual developed stock market. Second, we add new evidence to the mounting results questioning the ubiquity of the IVOL effect. This highlights the importance of country verification of so called anomalies in the US, even in developed markets. Finally, we confirm earlier evidence both aggregate idiosyncratic and market volatilities in the French stock market exhibits regime switching behavior rather than showing a long-term time trends.
Author: David A. Lesmond
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
We examine the cross-sectional relation between idiosyncratic volatility (IV) and stock returns and find the results of AngHodrickXingZhang (2006) are critically dependent on the occurrence of zero returns that reflects an inflated measurement of IV. Specifically controlling for liquidity costs engendered in both the percentage of zero returns and the more direct bid-ask spread removes the ability of IV to predict future returns, contrary to SpiegelWang (2005) and Ang et al. (2006). Examining external shocks to liquidity due to reductions in the stated quotes after 1997 and 2001, shows a reduction in the occurrence of zero returns that is accompanied by a significant reduction in the pricing ability of IV. Restricting our analysis to those firms that experience less than 5 % zero returns during the period 1983 to 1996, when the overall pricing ability of IV is at a peak, shows no ability of IV to predict returns. The percentage of zero returns and its affect on IV measurement appears to be a missing component in the ongoing analysis of the pricing of IV.
Author: Bin Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 16
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Book Description
Han and Lesmond (2011) find that stock liquidity, namely bid-ask bounce, affects the pricing of idiosyncratic volatility. Following Ang et al. (2009) and Han and Lesmond (2011), we investigate the pricing of idiosyncratic volatility and liquidity-adjusted idiosyncratic volatility over the period January 2004 to December 2013 using a comprehensive Australian dataset. Our results indicate that (1) both lagged idiosyncratic volatility and lagged liquidity-adjusted idiosyncratic volatility are strongly and positively related to stock returns over the sample period; (2) consistent with Han and Lesmond (2011), the pricing of idiosyncratic volatility is largely captured by stock liquidity; (3) our liquidity adjusted idiosyncratic volatility estimates work well in explaining the variations of the stocks of small firms but do not explain much variations in stocks of large firms when size and BE/ME are controlled; (4) high idiosyncratic volatility stocks tend to be of small, volatile and illiquid.
