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The memory of stock return volatility: Asset pricing implications

Duc Binh Benno Nguyen, Marcel Prokopczuk () and Philipp Sibbertsen ()

Journal of Financial Markets, 2020, vol. 47, issue C

Abstract: We examine long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the United States and that the degree of memory can be related to firm characteristics, such as market capitalization, book-to-market ratio, prior performance, and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates significant excess returns of 1.71% per annum. Consistent with theory, we find that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns.

Keywords: Asset pricing; Long memory; Persistence; Volatility (search for similar items in EconPapers)
JEL-codes: C22 G12 (search for similar items in EconPapers)
Date: 2020
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Working Paper: The Memory of Stock Return Volatility: Asset Pricing Implications (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:47:y:2020:i:c:s138641811830140x

DOI: 10.1016/j.finmar.2019.01.002

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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