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The idiosyncratic volatility anomaly: Corporate investment or investor mispricing?

Malagon, J.; Moreno, D.; Rodríguez, R.

The idiosyncratic volatility anomaly: Corporate investment or investor mispricing? Thumbnail


Authors

J. Malagon

D. Moreno

R. Rodríguez



Abstract

Most of the literature on the idiosyncratic volatility anomaly has focused on plausible explanations for it based on investor preferences, investor irrationality or market characteristics. Surprisingly, the role of asset-pricing models and firm characteristics in the estimation of idiosyncratic risk measures has been largely neglected. Our results suggest that investment and profitability, presumably driven by managers and therefore linked to idiosyncratic risk, are able to account for the anomaly in a cross-section of stock returns. Moreover, we show that this effect is independent and complementary to the effects related to investor preference for skewness.

Citation

Malagon, J., Moreno, D., & Rodríguez, R. (2015). The idiosyncratic volatility anomaly: Corporate investment or investor mispricing?. Journal of Banking and Finance, 60, 224-238. https://doi.org/10.1016/j.jbankfin.2015.08.014

Journal Article Type Article
Acceptance Date Aug 8, 2015
Publication Date Nov 1, 2015
Deposit Date Sep 3, 2015
Publicly Available Date Feb 24, 2017
Journal Journal of Banking and Finance
Print ISSN 0378-4266
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 60
Pages 224-238
DOI https://doi.org/10.1016/j.jbankfin.2015.08.014
Keywords Idiosyncratic risk, Corporate investment, Investor mispricing, Valuation Theory, Accruals, Anomaly, Profitability.
Public URL https://durham-repository.worktribe.com/output/1423447

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Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 60, November 2015, 10.1016/j.jbankfin.2015.08.014.




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