Idiosyncratic volatility and retail investor preferences in the Australian market

Deborah Tan, Julia Henker

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

We explore the negative relation between idiosyncratic volatility and
future stock returns observed by previous researchers. We argue that, based on
the observation described in prospect theory, retail investors prefer stocks with a
high level of idiosyncratic volatility and are subsequently willing to overpay for
those stocks. In support of our argument, we find that the negative
idiosyncratic-volatility return relation is present in the Australian market, and
that this relation is affected by the magnitude of retail trading. The relation is
particularly strong when returns and realized volatility are measured at a daily
frequency.
Original languageEnglish
Pages1-55
Number of pages55
DOIs
Publication statusPublished - 2009
EventFinancial Management Association 2009 Annual Meeting - Reno - Lake Tahoe, Nevada, United States
Duration: 21 Oct 200924 Oct 2009
Conference number: 23rd

Conference

ConferenceFinancial Management Association 2009 Annual Meeting
Abbreviated titleFMA Annual Meeting
CountryUnited States
CityNevada
Period21/10/0924/10/09

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Investors
Idiosyncratic volatility
Retail
Return volatility
Stock returns
Prospect theory
Realized volatility

Cite this

Tan, D., & Henker, J. (2009). Idiosyncratic volatility and retail investor preferences in the Australian market. 1-55. Paper presented at Financial Management Association 2009 Annual Meeting, Nevada, United States. https://doi.org/10.2139/ssrn.1663504
Tan, Deborah ; Henker, Julia. / Idiosyncratic volatility and retail investor preferences in the Australian market. Paper presented at Financial Management Association 2009 Annual Meeting, Nevada, United States.55 p.
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Tan, D & Henker, J 2009, 'Idiosyncratic volatility and retail investor preferences in the Australian market' Paper presented at Financial Management Association 2009 Annual Meeting, Nevada, United States, 21/10/09 - 24/10/09, pp. 1-55. https://doi.org/10.2139/ssrn.1663504

Idiosyncratic volatility and retail investor preferences in the Australian market. / Tan, Deborah; Henker, Julia.

2009. 1-55 Paper presented at Financial Management Association 2009 Annual Meeting, Nevada, United States.

Research output: Contribution to conferencePaperResearchpeer-review

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Tan D, Henker J. Idiosyncratic volatility and retail investor preferences in the Australian market. 2009. Paper presented at Financial Management Association 2009 Annual Meeting, Nevada, United States. https://doi.org/10.2139/ssrn.1663504