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Gempesaw (2014) final.pdf (272.59 KB)

ETD Abstract Container

Abstract Header

Does Idiosyncratic Volatility Proxy for a Missing Risk Factor? Evidence from Using Portfolios as Test Assets

Gempesaw, David Conrad
http://rave.ohiolink.edu/etdc/view?acc_num=miami1406819417

Abstract Details

2014, Master of Arts, Miami University, Economics.
We use various samples of portfolios (Fama-French portfolios formed on size and book-to-market, Fama-French industry portfolios, and exchange traded funds) as test assets to investigate whether the negative relation between lagged idiosyncratic volatility (IVOL) and future average returns initially documented by Ang, Hodrick, Xing, and Zhang (2006) is due to a missing risk factor. Analytically, we show that if IVOL proxies for a missing risk factor, then the negative relation between IVOL and returns persists at a portfolio level since systematic risk is not eliminated through diversification. However, when we take it to the data, we do not find economically and statistically significant evidence of a relation between lagged IVOL and subsequent average returns. Taken together, our results suggest that the IVOL puzzle is not due to a missing risk factor.
Haimanot Kassa, Ph.D. (Advisor)
Tyler Henry, Ph.D. (Committee Member)
George Davis, Ph.D. (Committee Member)
45 p.
Economics; Finance
idiosyncratic risk; idiosyncratic volatility; IVOL; IVOL puzzle; missing risk factor; systematic risk; risk premium; portfolio diversification; portfolios; exchange traded funds; ETFs; asset pricing; CAPM; Fama-French; Fama-MacBeth; financial economics;

Recommended Citations

Citations

  • Gempesaw, D. C. (2014). Does Idiosyncratic Volatility Proxy for a Missing Risk Factor? Evidence from Using Portfolios as Test Assets [Master's thesis, Miami University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=miami1406819417

    APA Style (7th edition)

  • Gempesaw, David. Does Idiosyncratic Volatility Proxy for a Missing Risk Factor? Evidence from Using Portfolios as Test Assets. 2014. Miami University, Master's thesis. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=miami1406819417.

    MLA Style (8th edition)

  • Gempesaw, David. "Does Idiosyncratic Volatility Proxy for a Missing Risk Factor? Evidence from Using Portfolios as Test Assets." Master's thesis, Miami University, 2014. http://rave.ohiolink.edu/etdc/view?acc_num=miami1406819417

    Chicago Manual of Style (17th edition)

miami1406819417
848
© 2014, all rights reserved.
This open access ETD is published by Miami University and OhioLINK.