Idiosyncratic risk and the cross-section of expected stock returns

• 成果类型: Article
• 署名作者: Fu, Fangjian
• 署名单位: Singapore Management University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2008.02.003
• 发表日期: 2009
• 页码: 24-37
• 关键词: Idiosyncratic risk; Cross-sectional returns; Time-varying; GARCH

摘要

Theories such as Merton [1987. A simple model of capital market equilibrium with incomplete information. Journal of Finance 42, 483-510] predict a positive relation between idiosyncratic risk and expected return when investors do not diversify their portfolio. Ang, Hodrick, Xing, and Zhang [2006. The cross-section of volatility and expected returns. Journal of Finance 61, 259-299], however, find that monthly stock returns are negatively related to the one-month lagged idiosyncratic volatilities. I show that idiosyncratic volatilities are time-varying and thus, their findings should not be used to imply the relation between idiosyncratic risk and expected return. Using the exponential GARCH models to estimate expected idiosyncratic volatilities, I find a significantly positive relation between the estimated conditional idiosyncratic volatilities and expected returns. Further evidence suggests that Ang et al.'s findings are largely explained by the return reversal of a subset of small stocks with high idiosyncratic volatilities. (C) 2008 Elsevier B.V. All rights reserved.