Incomplete information, idiosyncratic volatility and stock returns
AbstractWhen investors have incomplete information, expected returns, as measured by an econometrician, deviate from those predicted by standard asset pricing models by including a term that is the product of the stock’s idiosyncratic volatility and the investors’ aggregated forecast errors. If investors are biased this term generates a relation between idiosyncratic volatility and expected stocks returns. Relying on forecast revisions from IBES, we construct a new variable that proxies for this term and show that it explains a significant part of the empirical relation between idiosyncratic volatility and stock returns.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 37 (2013)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/jbf
Idiosyncratic volatility; Incomplete information; Cross-section of stock returns;
Other versions of this item:
- Tony BERRADA & Julien HUGONNIER, 2008. "Incomplete information, idiosyncratic volatility and stock returns," Swiss Finance Institute Research Paper Series 08-23, Swiss Finance Institute.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
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