High Idiosyncratic Volatility and Low Returns: International and Further U.S. Evidence

52 Pages Posted: 24 Jan 2008 Last revised: 18 Jul 2010

Andrew Ang

BlackRock, Inc

Robert J. Hodrick

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Yuhang Xing

Rice University

Xiaoyan Zhang

Purdue University - Krannert School of Management; Tsinghua University - PBC School of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: January 2008

Abstract

Stocks with recent past high idiosyncratic volatility have low future average returns around the world. Across 23 developed markets, the difference in average returns between the extreme quintile portfolios sorted on idiosyncratic volatility is -1.31% per month, after controlling for world market, size, and value factors. The effect is individually significant in each G7 country. In the U.S., we rule out explanations based on trading frictions, information dissemination, and higher moments. There is strong comovement in the low returns to high idiosyncratic volatility stocks across countries, suggesting that broad, not easily diversifiable, factors may lie behind this phenomenon.

Suggested Citation

Ang, Andrew and Hodrick, Robert J. and Xing, Yuhang and Zhang, Xiaoyan, High Idiosyncratic Volatility and Low Returns: International and Further U.S. Evidence (January 2008). NBER Working Paper No. w13739. Available at SSRN: https://ssrn.com/abstract=1086991

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Robert J. Hodrick

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States

Yuhang Xing

Rice University ( email )

6100 South Main Street
Houston, TX 7705-1892
United States

Xiaoyan Zhang

Purdue University - Krannert School of Management ( email )

403 WEST STATE STREET
West Lafayette, IN 47907-1310
United States
7654967674 (Phone)

HOME PAGE: http://web.ics.purdue.edu/~zhang654/

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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