Idiosyncratic volatility, returns, and mispricing: No real anomaly in sight
Adam Zaremba , Anna Czapkiewicz , Barbara Będowska-Sójka
AbstractRecent 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.
|Journal series||Finance Research Letters, ISSN 1544-6123, e-ISSN 1544-6131, (A 15 pkt)|
|Publication size in sheets||0.5|
|Keywords in English||Idiosyncratic volatility, Low-risk anomaly, Abnormal returns, Return predictability, Mispricing, Stock market anomalies, Monte Carlo simulation|
|Score||= 15.0, 27-03-2020, ArticleFromJournal|
|Publication indicators||= 0; : 2018 = 0.854; : 2017 = 1.085 (2) - 2017=1.087 (5)|
|Citation count*||4 (2020-09-23)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.