Aggregate volatility risk and the cross-section of stock returns: Australian evidence

Mai, Van Anh (Vivian), Ang, Tze Chuan ‘Chewie’ and Victor Fang

Pacific-Basin Finance Journal, 2016, vol. 36, issue C, 134-149

Abstract: This study examines the relation between aggregate volatility risk and the cross-section of stock returns in Australia. We use a stock's sensitivity to innovations in the ASX200 implied volatility (VIX) as a proxy for aggregate volatility risk. Consistent with theoretical predictions, aggregate volatility risk is negatively related to the cross-section of stock returns only when market volatility is rising. The asymmetric volatility effect is persistent throughout the sample period and is robust after controlling for size, book-to-market, momentum, and liquidity issues. There is some evidence that aggregate volatility risk is a priced factor, especially in months with increasing market volatility.

Keywords: Aggregate volatility risk; Cross-sectional return; Asset pricing test; Implied volatility (VIX); Anomaly (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:36:y:2016:i:c:p:134-149

DOI: 10.1016/j.pacfin.2015.12.006

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