Return Reversals, Idiosyncratic Risk, and Expected Returns

• 成果类型: Article
• 署名作者: Huang, Wei; Liu, Qianqiu; Rhee, S. Ghon; Zhang, Liang
• 署名单位: University of Hawaii System; University of Hawaii Manoa; Sungkyunkwan University (SKKU); University of Melbourne
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhp015
• 发表日期: 2010
• 页码: 147
• 关键词: STOCK RETURNS; cross-section; conditional heteroskedasticity; CONTRARIAN PROFITS; MARKET-EFFICIENCY; volatility; equilibrium; overreaction

摘要

The empirical evidence on the cross-sectional relation between idiosyncratic risk and expected stock returns is mixed. We demonstrate that the omission of the previous month's stock returns can lead to a negatively biased estimate of the relation. The magnitude of the omitted variable bias depends on the approach to estimating the conditional idiosyncratic volatility. Although a negative relation exists when the estimate is based on daily returns, it disappears after return reversals are controlled for. Return reversals can explain both the negative relation between value-weighted portfolio returns and idiosyncratic volatility and the insignificant relation between equal-weighted portfolio returns and idiosyncratic volatility. In contrast, there is a significantly positive relation between the conditional idiosyncratic volatility estimated from monthly data and expected returns. This relation remains robust after controlling for return reversals.