Excess volatility and the cross-section of stock returns |
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| Affiliation: | 1. Department of Finance, Shanghai University of Finance and Economics, Shanghai 200433, PR China;2. Department of Financial Audit, National Audit Office, Shanghai, PR China;3. Department of Economics, Rutgers University-Camden, Camden, NJ, USA |
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| Abstract: | We document a reliable positive relation between excess volatility and the cross-section of stock returns over the sample period of 1963 to 2010. Significantly positive differentials have been found between the two decile portfolios with the largest and the least excess volatility, under all the situations we have examined. Size, value, and momentum effects cannot explain our empirical results. Likewise they cannot be explained by liquidity, bid-ask bounce, and risk-aversion-related inventory effects. |
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| Keywords: | Excess volatility Cross-section of stock returns Sentiment risk |
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