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The Cross-Section of Volatility and Expected Returns

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Author Info
Andrew Ang
Robert J. Hodrick
Yuhang Xing
Xiaoyan Zhang

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10852.

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Date of creation: Oct 2004
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Handle: RePEc:nbr:nberwo:10852

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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