Abstract

http://ssrn.com/abstract=1663504
 


 



Idiosyncratic Volatility and Retail Investor Preferences in the Australian Market


Deborah Tan


affiliation not provided to SSRN

Julia Henker


Bond University

August 23, 2010

23rd Australasian Finance and Banking Conference 2010 Paper

Abstract:     
We explore the negative relation between idiosyncratic volatility and future stock returns observed by previous researchers. We argue that, based on the observation described in prospect theory, retail investors prefer stocks with a high level of idiosyncratic volatility and are subsequently willing to overpay for those stocks. In support of our argument, we find that the negative idiosyncratic-volatility return relation is present in the Australian market, and that this relation is affected by the magnitude of retail trading. The relation is particularly strong when returns and realized volatility are measured at a daily frequency.

Number of Pages in PDF File: 52

Keywords: retail investors, behavioral finance, realized volatility

JEL Classification: G14, G12

working papers series





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Date posted: August 24, 2010  

Suggested Citation

Tan, Deborah and Henker, Julia, Idiosyncratic Volatility and Retail Investor Preferences in the Australian Market (August 23, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: http://ssrn.com/abstract=1663504 or http://dx.doi.org/10.2139/ssrn.1663504

Contact Information

Deborah Tan
affiliation not provided to SSRN ( email )
Julia Henker (Contact Author)
Bond University ( email )
Gold Coast, QLD 4229
Australia
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