Idiosyncratic Volatility Arbitrage Risk And Anomoly Returns
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Idiosyncratic Volatility Arbitrage Risk And Anomoly Returns
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Author : Lucy L. Jin
language : en
Publisher:
Release Date : 2013
Idiosyncratic Volatility Arbitrage Risk And Anomoly Returns written by Lucy L. Jin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
Idiosyncratic Volatility Arbitrage Risk And Anomaly Returns
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Author : Lucy L. Jin
language : en
Publisher:
Release Date : 2013
Idiosyncratic Volatility Arbitrage Risk And Anomaly Returns written by Lucy L. Jin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
Idiosyncratic Volatility And The Cross Section Of Anomaly Returns
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Author : Adam Zaremba
language : en
Publisher:
Release Date : 2018
Idiosyncratic Volatility And The Cross Section Of Anomaly Returns written by Adam Zaremba and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
Due to arbitrage risk asymmetries, the relationship between idiosyncratic risk and expected returns is positive (negative) among overpriced (underpriced) stocks. We offer a new active anomaly-selection strategy that capitalizes on this effect. To this end, we consider eleven equity anomalies in the U.S. market for years 1963-2016. Buying (selling) long (short) legs of the anomaly portfolios with the highest idiosyncratic volatility produces monthly abnormal returns ranging from 0.97% to 1.14% per month, outperforming a naive benchmark that equally weights all the anomalies by 45-70%. The effect cannot be subsumed by any other established anomaly-return predictor, like momentum or seasonality. The results are robust to many considerations, including different numbers of anomalies in the portfolios, subperiod analysis, as well as estimation of idiosyncratic risk from the alternative models and throughout different periods.
An Analysis Of The Beta Anomaly From An Idiosyncratic Volatility Perspective
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Author : Mark Matern
language : en
Publisher: GRIN Verlag
Release Date : 2018-02-21
An Analysis Of The Beta Anomaly From An Idiosyncratic Volatility Perspective written by Mark Matern and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-02-21 with Business & Economics categories.
Master's Thesis from the year 2017 in the subject Business economics - Investment and Finance, grade: 1,7, University of Mannheim, language: English, abstract: The foundation of this contribution will be the verification of the empirical results presented by Liu et al. (2017). We will start by summarizing their findings and explanations in Chapter 2 (Theoretical Background) and build the theoretical foundation upon which the empirical interpretation will rest. We actually view the compilation of the theoretical explanations in an intuitive line of reasoning as our first valuable contribution for our readers, as an understanding of the topic is not as easily to grasp after a first consultation of the papers. In Chapter 3 (Empirical Results) we address the actual calculations and most important summary statistics that will either speak in support or against our interpretations. In 3.1 (Data and Methodology), we present our dataset important technical notes and in Chapter 3.2 (The Beta Anomaly) we summarize and try to replicate the empirical findings of Liu et al. (2017), which will serve as the bedrock of interpretations we will arrive at in following pages. In Chapter 3.3 (Betting-against-Correlation) and its sub-sections on leverage, size and sentiment, we turn our attention to a paper by Asness et al. (2017) which contributed and responded to the findings of Liu et al. (2017), but with often diametrically contradicting views. The reference date of 2017 suggests that both papers belong to a highly new set of research and we believe that by covering those two and adding our own findings we can add significant clarity to actually understand what is going in the space of the beta anomaly. In Chapter 3.4 (BAB vs. BAI), we finalise the empirical analysis by contrasting opposing views on strategies that are designed to exploit the low-beta anomaly and realign the findings that we came across. We will summarize the newly gained insights for our readers in our last Chapter 4.
Arbitrage Asymmetry And The Idiosyncratic Volatility Puzzle
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Author : Robert F. Stambaugh
language : en
Publisher:
Release Date : 2020
Arbitrage Asymmetry And The Idiosyncratic Volatility Puzzle written by Robert F. Stambaugh and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.
Many investors purchase stock but are reluctant or unable to sell short. Combining this arbitrage asymmetry with the arbitrage risk represented by idiosyncratic volatility (IVOL) explains the negative relation between IVOL and average return. The IVOL-return relation is negative among overpriced stocks but positive among underpriced stocks, with mispricing determined by combining 11 return anomalies. Consistent with arbitrage asymmetry, the negative relation among overpriced stocks is stronger, especially for stocks less easily shorted, so the overall IVOL-return relation is negative. Further supporting our explanation, high investor sentiment weakens the positive relation among underpriced stocks and, especially, strengthens the negative relation among overpriced stocks.
Arbitrage Risk And The Book To Market Anomaly
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Author : Ashiq Ali
language : en
Publisher:
Release Date : 2002
Arbitrage Risk And The Book To Market Anomaly written by Ashiq Ali and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
This paper shows that the book-to-market (B/M) effect is greater for stocks with higher idiosyncratic return volatility, higher transaction costs and lower investor sophistication, consistent with the market mispricing explanation for the anomaly. The B/M effect for high volatility stocks exceeds that for the low volatility stocks in 20 of the 22 sample years. Also, volatility exhibits significant incremental power beyond the transaction costs and investor sophistication measures in explaining cross-sectional variation in the B/M effect. These findings are consistent with the Shleifer and Vishny (1997) thesis that risk associated with the volatility of arbitrage returns deters arbitrage activity and is an important reason why the B/M effect exists.
The Idiosyncratic Volatility Anomaly And The Resale Option In Chinese Stock Markets
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Author : Zhiguang Cao
language : en
Publisher:
Release Date : 2018
The Idiosyncratic Volatility Anomaly And The Resale Option In Chinese Stock Markets written by Zhiguang Cao and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
The well-documented negative association between idiosyncratic volatility (IV) and stock returns is puzzling if investors are risk-averse. We show that this anomaly is also prominent in the Chinese stock market. We attempt to explain the IV anomaly by using the key theories suggested by the literature, such as the lottery effect, arbitrage asymmetry, prospect theory, return reversals and more. None of these competing theories is able to justify the IV anomaly in China. Given that the Chinese stock market possesses both short selling constraints and heterogeneous beliefs, we employ resale option theory as a way to explain the IV puzzle. We find that the resale option value is consistently related to the IV effect in China, and that the explanatory power of the resale option value for the IV anomaly survives a range of robustness tests.
Cross Section Of Option Returns And Idiosyncratic Stock Volatility
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Author : Jie Cao
language : en
Publisher:
Release Date : 2016
Cross Section Of Option Returns And Idiosyncratic Stock Volatility written by Jie Cao and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This paper documents a robust new finding that delta-hedged equity option return decreases monotonically with an increase in the idiosyncratic volatility of the underlying stock. This result can not be explained by standard risk factors. It is distinct from existing anomalies in the stock market or volatility-related option mispricing. It is consistent with market imperfections and constrained financial intermediaries. Dealers charge a higher premium for options on high idiosyncratic volatility stocks due to their higher arbitrage costs. Controlling for limits to arbitrage proxies reduces the strength of the negative relation between delta-hedged option return and idiosyncratic volatility by about 40%.
Arbitrage Asymmetry And The Idiosyncratic Volatility Puzzle
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Author : Robert F. Stambaugh
language : en
Publisher:
Release Date : 2012
Arbitrage Asymmetry And The Idiosyncratic Volatility Puzzle written by Robert F. Stambaugh and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Arbitrage categories.
Short selling, as compared to purchasing, faces greater risks and other potential impediments. This arbitrage asymmetry explains the negative relation between idiosyncratic volatility (IVOL) and average return. The IVOL effect is negative among overpriced stocks but positive among underpriced stocks, with mispricing determined by combining 11 return anomalies. The negative effect is stronger, consistent with asymmetry in risks and other impediments inhibiting arbitrageurs in exploiting overpricing. Aggregating across all stocks therefore yields a negative relation, explaining the IVOL puzzle. Further supporting our explanation is a negative relation over time between the IVOL effect and investor sentiment, especially among overpriced stocks.
Firm Specific News And Anomalies
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Author : Hai Hoang Van
language : en
Publisher:
Release Date : 2019
Firm Specific News And Anomalies written by Hai Hoang Van and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with Economics categories.
This study investigates the relation between idiosyncratic volatility and future returns around the firm-specific news announcements in the Korean stock market from July 1995 to June 2018. The excess returns of decile portfolios that are formed by sorting the stocks based on news and non-news idiosyncratic volatility measures. The Fama and French three-factor model is also examined to see whether systematic risk affects news and non-news idiosyncratic volatility profits. The pricing of our news and non-news idiosyncratic volatility are confirmed in the cross-sectional regression using the Fama and MacBeth method. Market beta, size, book to market, momentum, liquidity, and maximum return are controlled to determine robustness. Our empirical evidence suggests that the pricing of the non-news idiosyncratic volatility is more strongly negative compared to the news idiosyncratic volatility, which is contrary to the limited arbitrage explanation for the negative price of the idiosyncratic volatility. We find that the non-news idiosyncratic volatility has a robust negative relation to returns in non-January months. Macro-finance factors drive the conditioned on the missing risk factor hypothesis, the pricing of idiosyncratic volatility. This study contributes to a better understanding of the role of the conditional idiosyncratic volatility in asset pricing. As the Korean stocks provide a fresh sample, our non-U.S. investigation delivers a useful out-of-sample test on the pervasiveness of the non-news volatility effect across the emerging markets.