The High Idiosyncratic Volatility Low Return Puzzle

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anking and the holding month. Robust Newey-West t-statistics are reported in square brackets. The bottompanel reports average stock size and average number of forecasts (’est’) made by analysts in a given monthThe sample period is from January 1976 to December 2006. Panel B reports the results for first sorting oidiosyncratic volatility, and on analyst forecast Table dispersion. 10 - Panel BB. Stocks with at least three analysts making forecastsanalyst dispersion rank1 2 3 4 5value-weighted portfolio returnivol rank t t+1 t t+1 t t+1 t t+1 t t+11 1.45 1.12 1.03 1.06 0.98 1.26 0.82 1.23 0.55 1.422 1.85 1.14 1.57 1.14 1.43 1.17 1.26 1.25 0.87 1.653 2.20 0.96 1.69 1.08 1.80 1.17 1.89 1.31 1.57 1.084 2.88 0.98 2.41 1.06 2.45 1.48 2.54 1.39 2.41 0.655 4.65 0.99 3.57 0.80 3.64 0.88 3.83 0.63 5.07 0.235-1 3.20 -0.13 2.53 -0.26 2.66 -0.38 3.01 -0.60 4.52 -1.19[4.84] [-0.40] [5.23] [-0.91] [5.64] [-1.25] [5.67] [-1.88] [6.54] [-2.82]equally-weighted portfolio returnivol rank t t+1 t t+1 t t+1 t t+1 t t+11 1.08 1.29 0.86 1.27 0.71 1.38 0.41 1.35 -0.45 1.632 1.68 1.33 1.25 1.36 1.08 1.45 0.63 1.45 -0.50 1.7013
Summary• We find that the division of the highest ivol quintile is useful.– Sensitivity to variation of the empirical procedure is annoying.– It should be understood in any serious attempt to explain the effect.• What to do next?– Focus on shocks to explore temporarily high volatility.– In fact, we have a new paper:“The Long Memory in Stock Price Shocks”14
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 12 and 13: 3 -0.18 [-0.78] -0.04 [-0.17] 0.08

The High Idiosyncratic Volatility Low Return Puzzle

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