The Volatility Effect Revisited

Blitz, David; Vliet, Pim van; Baltussen, Guido

doi:10.2139/ssrn.3442749

Cited by 10 publications

(9 citation statements)

References 82 publications

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“…Nonetheless, Ang, Hodrick, et al (2006) demonstrate a negative relationship between risk-specific risk and future returns. Subsequently, future studies confirmed the results with evidence from different research samples and offered several economic mechanisms linking stock-specific risk with future returns (see Blitz, van Vliet, and Baltussen (2019) or Zaremba and Shemer (2018) for a comprehensive review). In the vast majority of these articles, the stock-specific return variation was measured with absolute idiosyncratic volatility rather than with relative idiosyncratic volatility.…”

Section: Introductionsupporting

confidence: 53%

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Price nonsynchronicity, idiosyncratic risk, and expected stock returns in China

Long

Zaremba

Jiang

2020

Economic Research-Ekonomska Istraživanja

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We are the first to examine the pricing of relative idiosyncratic risk, or price nonsynchronicity, in the Chinese equity market. Using several tests, we investigate returns on more than 2700 companies in the period 1998 to 2018. Contrary to the U.S. evidence, price nonsynchronicity negatively predicts future returns in the cross-section. A value-weighted strategy going long (short) the quintile of least (most) synchronised stocks produces a negative monthly six-factor model alpha of À0.61%. Also, we demonstrate that the effect is driven by the low-idiosyncratic volatility anomaly. Once the absolute idiosyncratic risk is taken into account, the nonsynchronicity becomes irrelevant for future returns.

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Section: Introductionsupporting

confidence: 53%

“…2. For reviews of the studies on the role of idiosyncratic risk, see, e.g., Blitz et al (2019), Zaremba (2016), Zaremba andShemer (2016, 2018), or Szczygielski, Mikutowski, and Zaremba, (2019). 3.…”

Section: Notesmentioning

confidence: 99%

Price nonsynchronicity, idiosyncratic risk, and expected stock returns in China

Long

Zaremba

Jiang

2020

Economic Research-Ekonomska Istraživanja

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“…The high-risk firms tend to underperform the low-risk firms on the risk adjusted basis, both when the risk is understood as a systematic risk or an idiosyncratic risk (Frazzini and Pedersen 2014;Ang et al 2006Ang et al , 2009. The effect is usually explained with the combination of behavioral biases and limits to arbitrage (Blitz et al 2019). Notably, some other measures of price-based risk, such as value at risk, display a rather positive than negative relationship with future returns in the cross section (Bali and Cakici 2004).…”

Section: Price Riskmentioning

confidence: 99%

The Cross Section of Country Equity Returns: A Review of Empirical Literature

Zaremba

2019

JRFM

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The last three decades brought mounting evidence regarding the cross-sectional predictability of country equity returns. The studies not only documented country-level counterparts of well-established stock-level anomalies, such as size, value, or momentum, but also demonstrated some unique return-predicting signals such as fund flows or political regimes. Nonetheless, the different studies vary remarkably in terms of their dataset and methods employed. This study aims to provide a comprehensive review of the current literature on the cross-section of country equity returns. We focus on three particular aspects of the asset pricing literature. First, we study the choice of dataset and sample preparation methods. Second, we survey different aspects of the methodological approaches. Last but not least, we review the country-level equity anomalies discovered so far. The discussed cross-sectional return patterns not only provide new insights into international asset pricing but can also be potentially translated into effective country allocation strategies.

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“…Another related stream of literature finds a low-risk anomaly for risk measured over very short-term lookback periods, most notably Ang et al (2006Ang et al ( , 2009, who consider past 1-month idiosyncratic volatility (iVol), and Bali et al (2011), who use the maximum daily return over the past 1 month (MAX). We refer to Russo (2016) and Blitz et al (2020b) for a comprehensive overview of the literature on the low-risk effect.…”

Section: Introductionmentioning

confidence: 99%

The Volatility Effect in China

Blitz¹,

Hanauer

Vliet³

2021

J Asset Manag

Self Cite

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This paper shows that low-risk stocks significantly outperform high-risk stocks in the local China A-share market. The main driver of this low-risk anomaly is volatility, and not beta. A Fama–French style VOL factor is not explained by the Fama–French–Carhart factors, and has the strongest stand-alone performance among all these factors. Our findings are robust across sectors and over time, and consistent with previous empirical evidence for the US and international markets. Moreover, the VOL premium exhibits excellent investability characteristics, as it involves a low turnover and remains strong when applied to only the largest and most liquid stocks. Our results imply that the volatility effect is a highly pervasive phenomenon, and that explanations should be able to account for its presence in highly institutionalized markets, such as the US, but also in the Chinese market where private investors dominate trading.

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The Volatility Effect Revisited

Cited by 10 publications

References 82 publications

Price nonsynchronicity, idiosyncratic risk, and expected stock returns in China

Price nonsynchronicity, idiosyncratic risk, and expected stock returns in China

The Cross Section of Country Equity Returns: A Review of Empirical Literature

The Volatility Effect in China

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