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The Cross‐Section of Volatility and Expected Returns*

* This paper has been replicated

Author

Listed:
  • ANDREW ANG
  • ROBERT J. HODRICK
  • YUHANG XING
  • XIAOYAN ZHANG

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. Stocks with high idiosyncratic volatility relative to the Fama and French (1993, Journal of Financial Economics 25, 2349) 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

  • Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
    • Handle: RePEc:bla:jfinan:v:61:y:2006:i:1:p:259-299
    DOI: 10.1111/j.1540-6261.2006.00836.x
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    Replication

    This item has been replicated by:
  • Fu, Fangjian, 2009. "Idiosyncratic risk and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 91(1), pages 24-37, January.

    • More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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    1. The Cross‐Section of Volatility and Expected Returns (JF 2006) in ReplicationWiki

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