The Long and Short of the Vol Anomaly

97 Pages Posted: 30 May 2014 Last revised: 15 Apr 2016

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: April 11, 2016

Abstract

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

Jordan, Bradford D. and Riley, Timothy B., The Long and Short of the Vol Anomaly (April 11, 2016). Available at SSRN: https://ssrn.com/abstract=2442902 or http://dx.doi.org/10.2139/ssrn.2442902

Bradford D. Jordan (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)

Timothy Brandon Riley

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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