idiosyncratic volatility
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2022 ◽  
pp. 102672
Jan Annaert ◽  
Marc De Ceuster ◽  
Freek Van Doninck

2021 ◽  
pp. 102577
Daniel Mantilla-Garcia ◽  
Juliana Malagon ◽  
Julian R. Aldana-Galindo

2021 ◽  
Vol 18 (4) ◽  
pp. 190-202
Shah Saeed Hassan Chowdhury

Standard finance theory suggests that idiosyncratic volatility should not influence stock returns. In reality, if investors are unable to achieve efficient diversification, such risk may affect stock returns. The purpose of the study is to examine the presence of idiosyncratic volatility and sentiment in the stock markets of the GCC (Gulf Cooperation Council) countries. Monthly idiosyncratic volatility is estimated using the Fama-French three-factor model. A unified sentiment proxy for each market is created by employing Principal Component Analysis (PCA). Then, Ordinary Least Squares (OLS) regressions are applied. F-statistics, t-statistics, and adjusted R2s are used to test the presence of idiosyncratic volatility and sentiment in the GCC markets.Findings show that the effect of sentiment on stock returns is observed across all the GCC markets. Investor sentiment can weakly explain the effect of idiosyncratic volatility on stock returns. In general, investors do not price expected idiosyncratic volatility, and only the unexpected part of it affects stock returns. Overall, the first implication for investors is that they must consider market sentiment to predict the cross-section of stock prices and should not completely ignore the influence of idiosyncratic volatility on stocks. Secondly, the implication for policymakers is that they should motivate companies to go public so that investors have more options to diversify their portfolios across different sectors.

Fabian Hollstein ◽  
Marcel Prokopczuk ◽  
Björn Tharann

In recent years, commodity markets have become increasingly popular among financial investors. While previous studies document a factor structure, not much is known about how prominent anomalies are priced in commodity futures markets. We examine a large set of such anomaly variables. We identify sizable premia for jump risk, momentum, skewness, and volatility-of-volatility. Other prominent variables, such as downside beta, idiosyncratic volatility, and MAX, are not priced in commodity futures markets. Commodity investors should rebalance their portfolios regularly. Returns for annual holding periods are substantially weaker than for monthly rebalancing.

2021 ◽  
Vol 31 (9) ◽  
pp. 2289
Mei Rinta

This study examines the influence between company complexity and client importance on idiosyncratic volatility. The research sample are listed companies in all industries except financial services and banking for period 2014-2018. The dependent variable is idiosyncratic volatility, while the independent variable is company complexity and client importance. Multiple linear regression was used to test. The results showed that there was a significant positive effect of client importance on the dependent variable and a significant negative effect on company complexity on the dependent variable. This means that business line information and auditor-related factors are a signal for investors to react to company shares. Keywords: Complexity Of The Company; Client Importance; Idiosyncratic Volatility.

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Qingzhong Ma ◽  
David A. Whidbee ◽  
Wei Zhang

PurposeThis paper examines the extent to which noise demand and limits of arbitrage affect the pricing of acquirer stocks both at the announcement period and over the longer horizon.Design/methodology/approachAn event study approach was adopted to measure announcement-period cumulative abnormal returns. Long-horizon returns are measured using buy-and-hold abnormal returns (BHARs), calendar time portfolios (CTPRs), and subsequent earnings announcement period abnormal returns. Main methodologies include ordinary least squared (OLS) regressions, Logit regressions, and portfolio analysis.Findings(1) Acquirer stocks with high idiosyncratic volatility (the proxy for the security level characteristic most directly associated with limits to arbitrage) earn higher announcement-period abnormal returns. (2) The return pattern reverses over the subsequent longer horizon, resembling news-driven transitory mispricing. (3) The mispricing is greater when deal and firm characteristics exacerbate the limits of arbitrage, and it weakens over time. (4) Transactions by higher idiosyncratic volatility acquirers are more likely to fail.Originality/valueLimits of arbitrage theory have been tested mostly in information-free circumstances. The findings in this paper extend the supporting evidence for limits of arbitrage explaining mispricing beyond the boundaries of information-free circumstances.

2021 ◽  
Vol 19 (2) ◽  
pp. 114
Yenny Kumalasari ◽  
Sansaloni Butar Butar

Idiosyncratic volatility is a series of sharp increase or decreas in stock prices due to a company's fundamental. This study argues that transparent financial reports should reduce idiosyncratic volatility. Transparent financial reports are the function of CEO age, board of commissioner size, board of commissioner meetings frequency, Audit Committee meetings frequency, ownership concentration, and audit tenure. Therefore, this study examines the effect of these variables on idiosyncratic volatility. Samples were gathered from Indonesian public firms for the periode of 2014-2018. Using regression analysis for the test of hypothesis, results show that while board of commissioner meetings frequency and audit tenure have negative effects on idiosyncratic volatility, the size of the board of commissioners, concentration of ownership have positive effects on idiosyncratic volatility. On the contrary, CEO age and audit committee meetings frequency have no effects on idiosyncratic volatility.

2021 ◽  
Vol 47 (9) ◽  
pp. 110-140
Nazli Sila Alan ◽  
Ahmet K. Karagozoglu ◽  
Tianpeng Zhou

2021 ◽  
Vol 2021 ◽  
pp. 1-7
Xiaohui Chen ◽  
Jianhua Ye

Investigating the existence and causes of idiosyncratic volatility premium puzzle in developing stock market can enrich the research on this asset pricing puzzle. To investigate the existence and whether limits to arbitrage in China’s A-share market can explain the idiosyncratic volatility premium puzzle, this paper uses listed stocks in China’s A-share market from 2002 to 2019 as a sample. We calculate three individual measures and one comprehensive measure of limits to arbitrage based on Chinese specific regulations. After that, we conduct univariate portfolios analysis, regression analysis, and bivariate portfolios analysis to obtain evidence. We prove that idiosyncratic volatility premium puzzle exists in China’s A-share market and is robust and that limits to arbitrage in this market can partly explain this asset pricing puzzle. This paper enriches research on asset pricing anomaly and can help us evaluate the effect of China’s A-share market reform.

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