The alphas of beta and idiosyncratic volatility

Percy Poon, Tong Yao and Zhang, Andrew (Jianzhong)

Journal of Financial Markets, 2022, vol. 61, issue C

Abstract: We find that the relation between the idiosyncratic volatility (IVOL) anomaly and the beta anomaly is quite different at long horizons than at short horizons. At short horizons, neither anomaly can fully explain the other. At long horizons, the IVOL-alpha relation is explained by the beta-alpha relation. A long-window estimate of idiosyncratic volatility measure popularly used by the investment industry behaves more like beta than IVOL in predicting returns and alphas. Our findings suggest that the short-horizon and long-horizon low-risk effects are different and warrant different explanations.

Keywords: Beta anomaly; Idiosyncratic volatility anomaly; Alpha (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:61:y:2022:i:c:s1386418122000131

DOI: 10.1016/j.finmar.2022.100720

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