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Financial Distress and Idiosyncratic Volatility: An Empirical Investigation


Jing Chen


Columbia University - Columbia Business School

Lorán Chollete


UiS Business School

Rina Ray


Norwegian School of Economics (NHH)
December 16, 2009


Abstract:     
We investigate the link between distress and idiosyncratic volatility. Specifically, we examine the twin puzzles of anomalously low returns for high idiosyncratic volatility stocks and high distress risk stocks, documented by Ang et al (2006) and Campbell et al (2008), respectively. We document that these puzzles are empirically connected, and can be explained by a simple, theoretical, single-beta CAPM model.

Keywords: Distress risk, idiosyncratic volatility, single-beta CAPM

JEL Classification: G11, G12

working papers series


Date posted: December 21, 2009 ; Last revised: March 24, 2010

Suggested Citation

Chen, Jing, Chollete, Lorán and Ray, Rina, Financial Distress and Idiosyncratic Volatility: An Empirical Investigation (December 16, 2009). Available at SSRN: http://ssrn.com/abstract=1524454

Contact Information

Jing Chen
Columbia University - Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States
Loran Chollete (Contact Author)
UiS Business School ( email )
PB 8002
Stavanger, 4036
Norway
Rina Ray
Norwegian School of Economics (NHH) ( email )
Helleveien 30
Oslo, 5045
Norway
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