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Volatility Effects

Reward goes with risk, and volatility represents risk. Therefore, volatility means reward; investors/traders get paid for riding roller coasters. Right? These blog entries relate to volatility effects.

No Reward for Risk?

The market rewards investors for taking risk. Right? High volatility means high risk. Right? High volatility therefore means excess return. Right? In their January 2006 paper entitled “High Idiosyncratic Volatility and Low Returns: International and Further U.S. Evidence”, Andrew Ang, Robert Hodrick, Yuhang Xing and Xiaoyan Zhang test the relationship between past idiosyncratic volatility and future returns for stocks in developed markets around the world. Using data from 23 countries mostly over the period January 1980 through December 2003, they find that: Keep Reading

Recognition: Is That a Good Thing?

In the September 2005 version of their paper entitled “Investor Recognition and Stock Returns”, Reuven LeHavy and Richard Sloan analyze the relation between how widely a stock is recognized and its returns (past and future). They use change in the proportion of quarterly SEC Form 13-F filers (institutional investment managers who exercise investment discretion over $100 million) holding a stock to represent the change in investor recognition of that stock. Using Form 13-F and stock price data over the period 1982-2004, they find that: Keep Reading

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