Aggregate Idiosyncratic Volatility, Dynamic Aspects of Loss Aversion, and Narrow Framing

39 Pages Posted: 16 Sep 2015

See all articles by Jungshik Hur

Jungshik Hur

Louisiana Tech University

Cedric Mbanga

Missouri State University

Date Written: September 14, 2015

Abstract

We test the dynamic aspects of the loss aversion feature of Kahneman and Tversky (1979) and find that idiosyncratic volatility is negatively associated with unrealized gains of stock returns. Moreover, we show that this negative relationship is stronger for stocks with high individual investors’ holdings. Finally, we show that controlling for firm age as defined by Fink et al (2010) eliminates the significance of retail trading proportions as a driver of idiosyncratic volatility. These findings are robust to price, sentiment, and IPO dates. Bivariate vector auto-regression (VAR) confirms the causality of unrealized gains of stock returns on idiosyncratic volatility.

Keywords: Loss Aversion; Narrow Framing

JEL Classification: G11; G12

Suggested Citation

Hur, Jungshik and Mbanga, Cedric, Aggregate Idiosyncratic Volatility, Dynamic Aspects of Loss Aversion, and Narrow Framing (September 14, 2015). Available at SSRN: https://ssrn.com/abstract=2660275 or http://dx.doi.org/10.2139/ssrn.2660275

Jungshik Hur (Contact Author)

Louisiana Tech University ( email )

P.O. Box 3178
Ruston, LA 71272
United States
318-257-3558 (Phone)
318-257-4253 (Fax)

Cedric Mbanga

Missouri State University ( email )

Glass 312
Springfield, MO 65807
United States

HOME PAGE: http://www.cmbanga.com

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