Aggregate Volatility Risk and the Cross-Section of Stock Returns: Australian Evidence

43 Pages Posted: 12 Apr 2015

See all articles by Van Anh (Vivian) Mai

Van Anh (Vivian) Mai

Deakin University - Faculty of Business and Law

Tze Chuan 'Chewie' Ang

Deakin University - Department of Finance; Financial Research Network (FIRN)

Victor Fang

Deakin University

Date Written: April 9, 2015

Abstract

This study examines the relation between aggregate volatility risk and the cross-section of stock returns in Australia. We use a stock’s sensitivity to innovations in the ASX200 implied volatility (VIX) as a proxy for aggregate volatility risk. Consistent with theoretical predictions, aggregate volatility risk is negatively related to the cross-section of stock returns only when market volatility is rising. The asymmetric volatility effect is persistent throughout the sample period and is robust after controlling for size, book-to-market, momentum, and liquidity issues. There is some evidence that aggregate volatility risk is a priced factor, especially in months with increasing market volatility.

Keywords: Aggregate volatility risk, cross-sectional return, asset pricing test, implied volatility (VIX), anomaly

JEL Classification: G12, G13, G14

Suggested Citation

Mai, Van Anh (Vivian) and Ang, Tze Chuan and Fang, Victor, Aggregate Volatility Risk and the Cross-Section of Stock Returns: Australian Evidence (April 9, 2015). Available at SSRN: https://ssrn.com/abstract=2593229 or http://dx.doi.org/10.2139/ssrn.2593229

Van Anh (Vivian) Mai

Deakin University - Faculty of Business and Law ( email )

Burwood, Victoria 3215
Australia

Tze Chuan Ang (Contact Author)

Deakin University - Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia
+61 3 9244 6626 (Phone)

HOME PAGE: http://www.deakin.edu.au/profiles/tze-ang

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia,
Brisbane, Queensland 4071
Australia

HOME PAGE: http://www.firn.org.au

Victor Fang

Deakin University ( email )

School of Acc Economics Finance
Burwood Highway
Burwood, Victoria 3215
Australia
92446919 (Phone)

HOME PAGE: http://www.deakin.edu.au

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