Innovation, Good Idiosyncratic Volatility, and Stock Returns

2017 ◽  
Author(s):  
Praveen Kumar ◽  
Dongmei Li
Keyword(s):  
Stock Returns ◽  
Idiosyncratic Volatility

scholarly journals Idiosyncratic volatility, option-based measures of informed trading, and investor attention

2021 ◽  
Author(s):  
Hannes Mohrschladt ◽  
Judith C. Schneider
Keyword(s):  
Stock Returns ◽  
Idiosyncratic Volatility ◽  
Investor Attention ◽  
Intuitive Idea ◽  
Joint Examination ◽  
Stock Market Investors ◽  
Private Investors ◽  
High Level ◽  
Do So ◽  
Option Market

AbstractWe establish a direct link between sophisticated investors in the option market, private stock market investors, and the idiosyncratic volatility (IVol) puzzle. To do so, we employ three option-based volatility spreads and attention data from Google Trends. In line with the IVol puzzle, the volatility spreads indicate that sophisticated investors indeed consider high-IVol stocks as being overvalued. Moreover, the option measures help to distinguish overpriced from fairly priced high-IVol stocks. Thus, these measures are able to predict the IVol puzzle’s magnitude in the cross-section of stock returns. Further, we link the origin of the IVol puzzle to the trading activity of irrational private investors as the return predictability only exists among stocks that receive a high level of private investor attention. Overall, our joint examination of option and stock markets sheds light on the behavior of different investor groups and their contribution to the IVol puzzle. Thereby, our analyses support the intuitive idea that noise trading leads to mispricing, which is identified by sophisticated investors and exploited in the option market.

Idiosyncratic volatility, the VIX and stock returns

2019 ◽  
Vol 47 ◽  
pp. 431-441 ◽  
Author(s):  
Mahmoud Qadan ◽  
Doron Kliger ◽  
Nir Chen
Keyword(s):  
Stock Returns ◽  
Idiosyncratic Volatility

On the Relation between EGARCH Idiosyncratic Volatility and Expected Stock Returns

2014 ◽  
Vol 49 (1) ◽  
pp. 271-296 ◽  
Author(s):  
Hui Guo ◽  
Haimanot Kassa ◽  
Michael F. Ferguson
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Return Time ◽  
Idiosyncratic Volatility ◽  
Model Parameters ◽  
Risk Return ◽  
Look Ahead ◽  
Monthly Return ◽  
Expected Stock Returns ◽  
Estimation Of Model Parameters

AbstractA spurious positive relation between exponential generalized autoregressive conditional heteroskedasticity (EGARCH) estimates of expected monthtidiosyncratic volatility and monthtstock returns arises when the monthtreturn is included in estimation of model parameters. We illustrate via simulations that this look-ahead bias is problematic for empirically observed degrees of stock return skewness and typical monthly return time series lengths. Moreover, the empirical idiosyncratic risk-return relation becomes negligible when expected monthtidiosyncratic volatility is estimated using returns only up to montht− 1.

Heterogeneous beliefs and idiosyncratic volatility puzzle: evidence from China

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mao He ◽  
Juncheng Huang ◽  
Hongquan Zhu
Keyword(s):  
Stock Returns ◽  
Trading Volume ◽  
Factor Model ◽  
Heterogeneous Beliefs ◽  
Idiosyncratic Volatility ◽  
Chinese Stock Market ◽  
Content Type ◽  
Volatility Puzzle ◽  
The Relationship ◽  
Idiosyncratic Volatility Puzzle

PurposeThe purpose of our study is to explore the “idiosyncratic volatility puzzle” in Chinese stock market from the perspective of investors' heterogeneous beliefs. To delve into the relationship between idiosyncratic volatility and investors' heterogeneous beliefs, and uncover the ability of heterogeneous beliefs, as well as to explain the “idiosyncratic volatility puzzle”, we construct our study as follows.Design/methodology/approachOur study adopts the unexpected trading volume as proxies of heterogeneity, the residual of Fama–French three-factor model as proxies of idiosyncratic volatility. Portfolio strategies and Fama–MacBeth regression are used to investigate the relationship between the two proxies and stock returns in Chinese A-share market.FindingsInvestors' heterogeneous beliefs, as an intermediary variable, are positively correlated with idiosyncratic volatility. Meanwhile, it could better demonstrate the negative correlation between the idiosyncratic volatility and future stock returns. It is one of the economic mechanisms linking idiosyncratic volatility to subsequent stock returns, which can account for 11.28% of the puzzle.Originality/valueThe findings indicate that idiosyncratic volatility is significantly and positively correlated with heterogeneous beliefs and that heterogeneous beliefs are effective intervening variables to explain the “idiosyncratic volatility puzzle”.

Bank-appointed directors and idiosyncratic volatility: evidence from India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nemiraja Jadiyappa ◽  
Anto Joseph ◽  
Garima Sisodia
Keyword(s):  
Stock Returns ◽  
Agency Costs ◽  
Negative Relationship ◽  
Least Square ◽  
Idiosyncratic Volatility ◽  
Active Monitoring ◽  
Content Type ◽  
Investment Projects ◽  
The Impact ◽  
Agency Costs Of Debt

PurposeThe purpose of this paper is to empirically examine the impact of the bank-appointed directors on the agency costs of debt by using the idiosyncratic risk of stock returns as a measure of agency costs of debt.Design/methodology/approachWe use multivariate panel regression, event study and finally, propensity score matching approaches to test our hypothesis. The robustness of the results is tested for possible endogeneity issues by employing instrumental variable two-stage least square (IV-2SLS) technique.FindingsConsistent with the efficient monitoring hypothesis, we find a negative relationship between the presence of the bank-appointed director and the idiosyncratic volatility of stock returns among Indian firms. This implies that such firms take up less risky investment projects.Originality/valueWe contribute to the literature from two aspects. First, to the best of our knowledge, this is the first study that examines the monitoring efficiency of creditors' governance. Hitherto, such examinations are done from the shareholders' perspective. Second, we examine the role of the bank-appointed directors on the board of non-financial firms in an emerging world context and find, contrary to the existing evidence in the US context, active monitoring role played by such directors.

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