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Is aggregate volatility a priced risk factor?

Stanley Peterburgsky

International Review of Finance, 2021, vol. 21, issue 3, 843-864

Abstract: This study shows that the relationships between sensitivity to changes in aggregate volatility and expected return on stocks documented by Ang et al. (Journal of Finance, 2006, 61, 259–299) for the 15‐year period from 1986 to 2000 have disappeared in the following 15‐year period. Aggregate volatility betas in the portfolio preformation month have not predicted postformation returns. Alphas from time‐series regressions of excess returns on the high‐minus‐low sensitivity to aggregate volatility portfolio with respect to the CAPM, the Fama–French three‐factor model, and the Fama–French five‐factor model have not been statistically different from zero. Finally, the price of aggregate volatility risk has not been statistically different from zero. Analysis based on high‐frequency data support these results. Thus, the importance of aggregate volatility as a factor in the presence of well‐known factors such as SMB and HML appears to be unclear.

Date: 2021
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