Firm age and realized idiosyncratic return volatility in China: The role of short-sales constraints

Hao Liu and Qun Zhang

International Review of Financial Analysis, 2021, vol. 75, issue C

Abstract: This paper investigates how realized idiosyncratic return volatility changes with firm age in the Chinese stock market. By employing a sample of 26,676 firm-year observations of 2798 A-share listed Chinese firms from 2001 to 2019, we find that realized idiosyncratic return volatility is negatively associated with firm age. Further, we find that loosening short-sales constraints strengthens this negative association, and that heterogeneity of investor beliefs is the most likely mechanism driving the negative relation, rather than the alternative explanations of cash flow volatility and growth options. Our results are fairly consistent under two different measures of firm age, and are robust to a choice of two multiple-factor models (the Fama-French three-factor and five-factor models) as well as two data frequencies (daily and monthly) used to estimate realized idiosyncratic return volatility.

Keywords: Firm age; Realized idiosyncratic return volatility; Heterogeneous investor beliefs; Short-sales constraints; Margin trading and short selling program (search for similar items in EconPapers)
JEL-codes: D82 G11 G12 G14 G18 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:75:y:2021:i:c:s1057521921000879

DOI: 10.1016/j.irfa.2021.101745

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