1# Library to Find Best eBook for Read
Author : Yingtong Dai
Release : 2022
Genre :
Kind : eBook
Book Rating : /5 ( reviews)
Book Synopsis Three Essays on Stock Returns and Idiosyncratic Risk by : Yingtong Dai
Download or read book Three Essays on Stock Returns and Idiosyncratic Risk written by Yingtong Dai. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Chengbo Fu
Release : 2019
Genre :
Kind : eBook
Book Rating : /5 ( reviews)
Book Synopsis Three Essays on Stock Market Volatility by : Chengbo Fu
Download or read book Three Essays on Stock Market Volatility written by Chengbo Fu. This book was released on 2019. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on stock market volatility. In the first essay, we show that investors will have the information in the idiosyncratic volatility spread when using two different models to estimate idiosyncratic volatility. In a theoretical framework, we show that idiosyncratic volatility spread is related to the change in beta and the new betas from the extra factors between two different factor models. Empirically, we find that idiosyncratic volatility spread predicts the cross section of stock returns. The negative spread-return relation is independent from the relation between idiosyncratic volatility and stock returns. The result is driven by the change in beta component and the new beta component of the spread. The spread-relation is also robust when investors estimate the spread using a conditional model or EGARCH method. In the second essay, the variance of stock returns is decomposed based on a conditional Fama-French three-factor model instead of its unconditional counterpart. Using time-varying alpha and betas in this model, it is evident that four additional risk terms must be considered. They include the variance of alpha, the variance of the interaction between the time-varying component of beta and factors, and two covariance terms. These additional risk terms are components that are included in the idiosyncratic risk estimate using an unconditional model. By investigating the relation between the risk terms and stock returns, we find that only the variance of the time-varying alpha is negatively associated with stock returns. Further tests show that stock returns are not affected by the variance of time-varying beta. These results are consistent with the findings in the literature identifying return predictability from time-varying alpha rather than betas. In the third essay, we employ a two-step estimation method to separate the upside and downside idiosyncratic volatility and examine its relation with future stock returns. We find that idiosyncratic volatility is negatively related to stock returns when the market is up and when it is down. The upside idiosyncratic volatility is not related to stock returns. Our results also suggest that the relation between downside idiosyncratic volatility and future stock returns is negative and significant. It is the downside idiosyncratic volatility that drives the inverse relation between total idiosyncratic volatility and stock returns. The results are consistent with the literature that investor overreact to bad news and underreact to good news.
Author : Amit Goyal
Release : 2001
Genre : Stocks
Kind : eBook
Book Rating : /5 ( reviews)
Book Synopsis Three Essays on the Predictability of Stock Returns by : Amit Goyal
Download or read book Three Essays on the Predictability of Stock Returns written by Amit Goyal. This book was released on 2001. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Haimanot Kassa
Release : 2013
Genre :
Kind : eBook
Book Rating : /5 ( reviews)
Book Synopsis Three Essays in Finance by : Haimanot Kassa
Download or read book Three Essays in Finance written by Haimanot Kassa. This book was released on 2013. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three loosely related essays. In Essay I, I study the relationship between firm specific risk and return. In Essay II, I study the managerial and investor short-termism. And in Essay III, I study investors heterogeneous preference for skewness and its effect on the idiosyncratic volatility puzzle. Essay I: A spurious positive relation between EGARCH estimates of expected month t idiosyncratic volatility and month t stock returns arises when the month t return 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 month t idiosyncratic volatility is estimated using returns only up to month t - 1. Essay II: The paper considers a model in which (1) managers allocate effort to both short and long-term projects, and (2) there is feedback between the managerial incentive contract and the number of speculators collecting information on each type of project. More weight placed on near-term price results in more speculation based on information about the short-term project, which induces further increases in the weight placed on near-term price. This feedback effect can result in short-term speculation crowding out the collection of long-term information, which in turn results in the withdrawal of incentives aimed at inducing effort in more profitable long-term projects. The paper shows that the equilibrium that obtains depends upon adjustment costs and initial conditions and is, in general, not efficient. Such outcomes are consistent with concerns about managerial and investor short-termism recently expressed by policy makers and market participants (e.g., the Aspen Institute). The paper considers the efficacy of various corporate and public policy remedies. Essay III: Consistent with models that incorporate investors heterogeneous preference for skewness, I show that (1) high skewness stocks are primarily held by investors with the strongest affinity for lottery-like payoff, (2) the negative skewness-return relation is the strongest for those stocks primarily held by agents with the strongest affinity for lottery-like payoff, (3) the idiosyncratic volatility-return relation is the strongest for those stocks held by agents with the strongest affinity for lottery-like payoff, and (4) investors heterogeneous preference for skewness help explain the idiosyncratic volatility puzzle. Taken together, the results provide evidence for the importance of investors heterogeneous preference for skewness in asset pricing and its implication on the idiosyncratic volatility puzzle.
Author : Fatma Sonmez Saryal
Release : 2010
Genre :
Kind : eBook
Book Rating : /5 ( reviews)
Book Synopsis Essays on Idiosyncratic Volatility and Asset Pricing by : Fatma Sonmez Saryal
Download or read book Essays on Idiosyncratic Volatility and Asset Pricing written by Fatma Sonmez Saryal. This book was released on 2010. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, I study three aspects of idiosyncratic volatility. First, I examine the relation between idiosyncratic volatility and future stock returns. Next, I examine the share price effect and its interaction with the idiosyncratic volatility on stock returns. Finally, I examine the time series pattern of monthly aggregate monthly idiosyncratic volatility. In the first chapter, I examine the relation between idiosyncratic volatility and future stock returns. In their paper, Ang, Hodrick, Xing, and Zhang [AHXZ (2006)] show that idiosyncratic volatility is inversely related to future stock returns: low idiosyncratic volatility stocks earn higher returns than do high idiosyncratic volatility stocks. The main contribution of this paper is to provide evidence that it is the month to month changes in idiosyncratic volatility that produce AHXZ's results. More specifically, a portfolio of stocks that move from Quintile 1 (low idiosyncratic volatility) to Quintile 5 (high idiosyncratic volatility) earns an average risk-adjusted return of 5.64% per month in the month of the change. Whereas, a portfolio of stocks that move from the highest to the lowest idiosyncratic volatility quintiles earns -0.94% per month in the month of the change. Eliminating all firm-month observations with idiosyncratic volatility quintile changes, I find the opposite results to AHXZ: it is persistently low idiosyncratic volatility stocks that earn lower returns than do persistently high idiosyncratic volatility stocks. I find that many of the extreme changes in idiosyncratic volatility are related to business events. In general, the pattern usually observed is that an announcement or an event increases uncertainty about a stock and hence, its idiosyncratic volatility increases. After the event, uncertainty is resolved and the stock returns to a lower idiosyncratic volatility quintile. In the second chapter, I examine how the level of the share price interacts with idiosyncratic volatility to affect future stock returns. Ignoring transaction costs, a trading strategy that is long high-priced and short low-priced stocks earns positive abnormal returns with respect to the Fama-French (1992) three factor model. However, the observed positive abnormal returns are less significant if momentum is taken into account via the Carhart (1997) four factor model. Also the relation between idiosyncratic volatility and future stock returns differs for price sorted portfolios: it is negative for low and mid-priced stocks but positive for high-priced ones. These results are robust for low and-mid-priced stocks even after momentum is included. However, the positive relation for high-priced stocks disappears due to relatively large loadings on momentum for high idiosyncratic volatility stocks. I also show that skewness and momentum are significant determinants of idiosyncratic volatility for low-priced stocks and high-priced stocks respectively. One implication is that the importance of idiosyncratic volatility for future stock returns may in part be due its role as a disguised risk factor: either for momentum for high-priced stocks and skewness for low and mid-priced stocks. In the third chapter, I investigate the time series pattern of aggregate monthly idiosyncratic volatility. It has been shown that new riskier listings in the US stock markets are a reason for the increase in idiosyncratic volatility during the period 1963-2004. First, I show that this is more pronounced for Nasdaq new listings. Second, I show that for Nasdaq, prior to 1994 low-priced new listings became riskier, whereas during the internet bubble period it is the higher-priced listings that became riskier. Third, I show that institutional holdings have increased over time and have had a different impact on each new listing group: a negative for pre-1994 listings and a positive impact for post-1994 listings. Hence, I conclude that the observed time-series pattern of idiosyncratic volatility is a result of the changing nature of Nasdaq's investor clientele.
