The Long and Short of the Vol Anomaly
97 Pages Posted: 30 May 2014 Last revised: 15 Apr 2016
Date Written: April 11, 2016
On average, stocks with high prior-period volatility underperform those with low prior-period volatility, but that simple comparison paints an incomplete, and potentially misleading, picture. As we show, high volatility is an indicator of both positive and negative future abnormal performance. Among high volatility stocks, those with low short interest experience extraordinary positive returns, while those with high short interest experience equally extraordinary negative returns. Our results show that there is a surprisingly strong connection between the volatility and short interest puzzles and that studying the two together yields new and sharper insights into both.
Keywords: Volatility, Short Interest, Anomaly, Market Efficiency, Abnormal Returns
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation