Stocks with extreme past returns: Lotteries or insurance?
Journal of Financial Economics, 2018, vol. 129, issue 3, 458-478
The paper shows that lottery-like stocks are hedges against unexpected increases in market volatility. The loading on the aggregate volatility risk factor explains the majority of low abnormal returns to stocks with high maximum returns in the past month (Bali et al., 2011) and high expected skewness (Boyer et al., 2010). Aggregate volatility risk also explains the new evidence that the maximum effect and the skewness effect are stronger for firms with high market to book or high expected probability of bankruptcy.
Keywords: Extreme returns; Skewness; Lottery; Idiosyncratic volatility; Aggregate volatility risk (search for similar items in EconPapers)
JEL-codes: G11 G12 E44 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:129:y:2018:i:3:p:458-478
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