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The Cross-Section of Volatility and Expected Returns

57 Pages Posted: 27 Oct 2004  

Andrew Ang

BlackRock, Inc

Robert J. Hodrick

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Yuhang Xing

Rice University

Xiaoyan Zhang

Purdue University - Krannert School of Management; Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. In addition, we find that stocks with high idiosyncratic volatility relative to the Fama and French (1993) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk. Size, book-to-market, momentum, and liquidity effects cannot account for either the low average returns earned by stocks with high exposure to systematic volatility risk or for the low average returns of stocks with high idiosyncratic volatility.

Suggested Citation

Ang, Andrew and Hodrick, Robert J. and Xing, Yuhang and Zhang, Xiaoyan, The Cross-Section of Volatility and Expected Returns (October 2004). NBER Working Paper No. w10852. Available at SSRN: https://ssrn.com/abstract=611363

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Robert J. Hodrick

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States

Yuhang Xing

Rice University ( email )

6100 South Main Street
Houston, TX 7705-1892
United States

Xiaoyan Zhang

Purdue University - Krannert School of Management ( email )

403 WEST STATE STREET
West Lafayette, IN 47907-1310
United States
7654967674 (Phone)

HOME PAGE: http://web.ics.purdue.edu/~zhang654/

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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