IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v74y2019i4p2055-2106.html
   My bibliography  Save this article

Income Hedging, Dynamic Style Preferences, and Return Predictability

Author

Listed:
  • JAWAD M. ADDOUM
  • STEFANOS DELIKOURAS
  • GEORGE M. KORNIOTIS
  • ALOK KUMAR

Abstract

We propose a theoretical measure of income hedging demand and show that it affects asset prices. We focus on the value factor and first demonstrate that our demand estimates are correlated with the actual demands of retail and mutual fund investors. We then show that the aggregate high‐minus‐low (HML) demand predicts HML returns. Exploiting the state‐level variation in income risk, we demonstrate that state‐level hedging demands predict state‐level HML returns. A long‐short portfolio that exploits this hedging‐induced predictability earns an annualized risk‐adjusted return of 6%.

Suggested Citation

  • Jawad M. Addoum & Stefanos Delikouras & George M. Korniotis & Alok Kumar, 2019. "Income Hedging, Dynamic Style Preferences, and Return Predictability," Journal of Finance, American Finance Association, vol. 74(4), pages 2055-2106, August.
    • Handle: RePEc:bla:jfinan:v:74:y:2019:i:4:p:2055-2106
    DOI: 10.1111/jofi.12775
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jofi.12775
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jofi.12775?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alex Borodin & Galina Panaedova & Svetlana Frumina & Aidyn Kairbekuly & Natalia Shchegolevatykh, 2021. "Modeling the Business Environment of an Energy Holding in the Formation of a Financial Strategy," Energies, MDPI, vol. 14(23), pages 1-18, December.
    2. Muhammad Abubakr Naeem & Mudassar Hasan & Muhammad Arif & Syed Jawad Hussain Shahzad, 2020. "Can Bitcoin Glitter More Than Gold for Investment Styles?," SAGE Open, , vol. 10(2), pages 21582440209, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:74:y:2019:i:4:p:2055-2106. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.