Idiosyncratic volatility, returns, and mispricing: No real anomaly in sight

Adam Zaremba , Anna Czapkiewicz , Barbara Będowska-Sójka

Abstract

Recent empirical evidence has shown that the relationship between idiosyncratic volatility and a stock's expected return depends on the pricing of the stock: it is negative among overvalued stocks and positive among undervalued ones. We provide both theoretical and numerical evidence that this risk-return relationship might be driven purely by mathematical properties of return distributions. Using a simulation-based approach, we document that even in completely random samples, the correlation between idiosyncratic risk and mean returns depends on the ex-post estimation of abnormal returns.
Author Adam Zaremba (WZ / KIiRK)
Adam Zaremba,,
- Department of Investment and Capital Markets
, Anna Czapkiewicz - AGH University of Science and Technology (AGH)
Anna Czapkiewicz,,
-
, Barbara Będowska-Sójka (WIiGE / KE)
Barbara Będowska-Sójka,,
- Department of Econometrics
Journal seriesFinance Research Letters, ISSN 1544-6123, e-ISSN 1544-6131, (A 15 pkt)
Issue year2018
Vol24
Pages163-167
Publication size in sheets0.5
Keywords in EnglishIdiosyncratic volatility, Low-risk anomaly, Abnormal returns, Return predictability, Mispricing, Stock market anomalies, Monte Carlo simulation
ASJC Classification2003 Finance
DOIDOI:10.1016/j.frl.2017.09.002
URL https://doi.org/10.1016/j.frl.2017.09.002
Languageen angielski
Score (nominal)15
Score sourcejournalList
ScoreMinisterial score = 15.0, 27-03-2020, ArticleFromJournal
Publication indicators WoS Citations = 0; Scopus SNIP (Source Normalised Impact per Paper): 2018 = 0.854; WoS Impact Factor: 2017 = 1.085 (2) - 2017=1.087 (5)
Citation count*4 (2020-09-23)
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* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.
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