Are idiosyncratic volatility and MAX priced in the Canadian market?

Anas Aboulamer and Lawrence Kryzanowski

Journal of Empirical Finance, 2016, vol. 37, issue C, 20-36

Abstract: The negative relationship between realized idiosyncratic volatility (RIvol) and future returns uncovered by Ang et al. (2006) for the U.S. market has been attributed to return reversals. For the Canadian market where return reversals are considerably less important, we find that RIvol is positively related to future returns, even after controlling for risk loadings, illiquidity and reversals. Unlike the findings of Bali et al. (2001) for the U.S. market, we find that the relationship between extreme positive returns (MAX) and future returns for the Canadian market is positive and that idiosyncratic volatility continues to be consistently positively related to future returns after controlling for MAX. We find evidence that suggests that reversals for stocks with extreme daily returns are confined to (typically small) stocks with low institutional holdings.

Keywords: Cross-sectional stock returns; Idiosyncratic risk; Illiquidity; Extreme returns; Skewness; Institutional holdings (search for similar items in EconPapers)
JEL-codes: C13 G11 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:37:y:2016:i:c:p:20-36

DOI: 10.1016/j.jempfin.2016.02.005

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