Published in:FRB of St. Louis Working Paper ; No. 2006-036A
Extent:
1 Online-Ressource (48 p)
Language:
Not determined
DOI:
10.2139/ssrn.904207
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 15, 2010 erstellt
Description:
Consistent with the post-1962 U.S. evidence by Ang, Hodrick, Xing, and Zhang [Ang, A., Hodrick, R., Xing Y., Zhang, X., 2006. The cross-section of volatility and expected returns. Journal of Finance 51, 259-299.], we find that stocks with high idiosyncratic variance (IV) have low CAPM-adjusted expected returns in both pre-1962 U.S. and modern G7 data. We also test in three ways the conjecture that IV is a proxy of systematic risk. First, the return difference between low and high IV stocks -- that we dub as IVF -- is a priced factor in the cross-section of stock returns. Second, loadings on lagged market variance and lagged average IV account for a significant portion of variation in average returns on portfolios sorted by IV. Third, the variance of IVF correlates closely with average IV, and the two variables have similar explanatory power for the time-series and cross-sectional stock returns