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

52 Pages Posted: 19 Mar 2008  

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

Andrew Ang

BlackRock, Inc

Robert J. Hodrick

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

Yuhang Xing

Rice University

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.

Keywords: idiosyncratic volatility, Fama-MacBeth regression

JEL Classification: C52, G11, G12.

Suggested Citation

Zhang, Xiaoyan and Ang, Andrew and Hodrick, Robert J. and Xing, Yuhang, High Idiosyncratic Volatility and Low Returns: International and Further U.S. Evidence (January 2008). Available at SSRN: https://ssrn.com/abstract=1108216 or http://dx.doi.org/10.2139/ssrn.1108216

Xiaoyan Zhang (Contact Author)

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Andrew Ang

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

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