Please use this identifier to cite or link to this item:
Title: Does idiosyncratic volatility proxy for risk exposure?
Authors: Petkova, Ralitsa
Chen, Zhanhui
Issue Date: 2012
Source: Chen, Z.,& Petkova, R. (2012). Does Idiosyncratic Volatility Proxy for Risk Exposure? Review of Financial Studies, 25(9), 2745-2787.
Series/Report no.: Review of Financial Studies
Abstract: We decompose aggregate market variance into an average correlation component and an average variance component. Only the latter commands a negative price of risk in the cross section of portfolios sorted by idiosyncratic volatility. Portfolios with high (low) idiosyncratic volatility relative to the Fama-French (1993) model have positive (negative) exposures to innovations in average stock variance and therefore lower (higher) expected returns. These two findings explain the idiosyncratic volatility puzzle of Ang et al. (2006, 2009). The factor related to innovations in average variance also reduces the pricing errors of book-to-market and momentum portfolios relative to the Fama-French (1993) model.
Rights: © 2012 The Author. Published by Oxford University Press on behalf of The Society for Financial Studies.
Fulltext Permission: none
Fulltext Availability: No Fulltext
Appears in Collections:NBS Journal Articles

Google ScholarTM



Items in DR-NTU are protected by copyright, with all rights reserved, unless otherwise indicated.