Financial Distress and Idiosyncratic Volatility: An Empirical Investigation

Posted: 21 Dec 2009 Last revised: 24 Mar 2010

See all articles by Jing Chen

Jing Chen

Columbia University - Columbia Business School

Lorán Chollete

UiS Business School

Rina Ray

Norwegian School of Economics (NHH)

Multiple version iconThere are 2 versions of this paper

Date Written: 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

Suggested Citation

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

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
Bergen, NO-5045
Norway

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