Negative Idiosyncratic Risk Premium?
July 2, 2010 - Volatility Effects
Conventional theory holds that financial markets reward risk (volatility) with return. Do stocks with relatively high volatilities in fact generate relatively high returns? In his April 2010 paper entitled “Low Risk and High Returns: Evidence from the German Stock Market”, Stefan Koch examines the relationship between past idiosyncratic volatility and future returns for individual German stocks. Using daily stock return and firm characteristics data for a broad sample of German firms spanning 1974-2006, he concludes that: Keep Reading