The High Idiosyncratic Volatility Low Return Puzzle

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3 -0.18 [-0.78] -0.04 [-0.17] 0.08 [0.31] 0.15 [0.60]6 -0.02 [-0.09] 0.09 [0.39] 0.19 [0.78] 0.25 [0.99]9 0.08 [0.37] 0.19 [0.80] 0.28 [1.11] 0.33 [1.31]12 0.17 [0.75] 0.28 [1.16] 0.36 [1.45] 0.40 [1.57]Table 9 - Panels E and FE. <strong>Return</strong>s (using the group of large stocks in quintile 5)LN 1 3 6 121 -1.03 [-3.16] -1.14 [-3.04] -1.23 [-3.17] -0.95 [-2.32]3 -0.77 [-2.43] -0.90 [-2.47] -0.88 [-2.32] -0.68 [-1.70]6 -0.65 [-2.05] -0.72 [-2.01] -0.70 [-1.84] -0.57 [-1.41]9 -0.53 [-1.67] -0.59 [-1.64] -0.59 [-1.55] -0.53 [-1.33]12 -0.46 [-1.44] -0.51 [-1.41] -0.52 [-1.36] -0.50 [-1.26]F. FF-3 alphas (using the group of large stocks in the quintile 5)LN 1 3 6 121 -1.36 [-6.52] -1.48 [-6.44] -1.58 [-6.65] -1.36 [-5.46]3 -1.09 [-5.80] -1.26 [-5.85] -1.26 [-5.46] -1.11 [-4.50]6 -1.01 [-5.75] -1.13 [-5.33] -1.12 [-4.92] -1.00 [-4.09]9 -0.90 [-5.23] -1.02 [-4.93] -1.03 [-4.55] -0.95 [-3.95]12 -0.85 [-4.96] -0.96 [-4.71] -0.96 [-4.29] -0.91 [-3.88]11
• For the second group in the ivol quintile 5, both winning and losing stockshave negative holding period returns.• Disagreement =⇒ Overpricing• What can generate disagreement? Hong and Stein (2007, JEP):– Gradual information flow– Limited attention– Heterogeneous priors• Miller (1977), Harrison and Kreps (1978), and Scheinkman and Xiong (2003)– Opinion divergence and short-sale constraint lead to overpricing.– Trading volume and the degree of overpricing are positively correlated.12
Page 3: • The Basic Result of AHXZ:month-
Page 6 and 7: What have we got? What are we tryin
Page 8 and 9: e reported in the lower panel. ‘s
Page 10 and 11: 5 1.70 2.47 6.04 0.19 7.58 -0.12 8.
Page 14 and 15: anking and the holding month. Robus

The High Idiosyncratic Volatility Low Return Puzzle

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