Journal article
The alphas of beta and idiosyncratic volatility
Journal of financial markets (Amsterdam, Netherlands), Vol.61, p.100720
11/2022
DOI: 10.1016/j.finmar.2022.100720
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.
•The beta anomaly and the IVOL anomaly are different at the long horizon so that the IVOL anomaly is dominated by the beta anomaly.•At the short horizon, either anomaly can dominate the other.•The low anomaly strategy used in industry is basically the low beta strategy.
Details
- Title: Subtitle
- The alphas of beta and idiosyncratic volatility
- Creators
- Percy Poon - University of Nevada, Las VegasTong Yao - University of IowaAndrew (Jianzhong) Zhang - University of Nevada, Las Vegas
- Resource Type
- Journal article
- Publication Details
- Journal of financial markets (Amsterdam, Netherlands), Vol.61, p.100720
- Publisher
- Elsevier B.V
- DOI
- 10.1016/j.finmar.2022.100720
- ISSN
- 1386-4181
- eISSN
- 1878-576X
- Language
- English
- Date published
- 11/2022
- Academic Unit
- Finance
- Record Identifier
- 9984380379402771
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