Realized idiosyncratic volatility and retail investors

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review

Abstract

Extract: Recent research demonstrates a negative relation between idiosyncratic risk and future return for some stocks. We explain this market irregularity with a behavioral finance argument. We argue that high idiosyncratic volatility stocks present a preferred trading habitat for individual investors because of the lottery-type qualities of these stocks. Consequently, individuals overvalue these stocks, reducing future return levels. Our findings that the negative idiosyncratic volatility premium is concentrated in the portion of the market that is characterized by relatively high retail investor trading support our argument. Moreover, we find that the phenomenon is particularly strong for daily returns and realized volatility, the result, we contend, of the activities of individual day traders.
Original languageEnglish
Title of host publicationProceedings of the 2012 Annual Meeting of the Academy of Behavioral Finance and Economics, September 18-21, 2012, NY, USA
PublisherAcademy of Behavioural Finance & Economics (ABF)
Pages63-65
Number of pages3
Publication statusPublished - 2012
EventThe 2012 Annual Meeting of the Academy of Behavioral Finance & Economics - New York, New York, United States
Duration: 18 Sep 201221 Sep 2012
http://aobf.org/2012Conference.htm

Conference

ConferenceThe 2012 Annual Meeting of the Academy of Behavioral Finance & Economics
CountryUnited States
CityNew York
Period18/09/1221/09/12
Internet address

Fingerprint

Idiosyncratic volatility
Investors
Retail
Return volatility
Habitat
Realized volatility
Premium
Lottery
Individual investors
Idiosyncratic risk
Behavioral finance
Traders

Cite this

Henker, J., Henker, T., & Tan, D. (2012). Realized idiosyncratic volatility and retail investors. In Proceedings of the 2012 Annual Meeting of the Academy of Behavioral Finance and Economics, September 18-21, 2012, NY, USA (pp. 63-65). Academy of Behavioural Finance & Economics (ABF).
Henker, Julia ; Henker, Thomas ; Tan, Deborah. / Realized idiosyncratic volatility and retail investors. Proceedings of the 2012 Annual Meeting of the Academy of Behavioral Finance and Economics, September 18-21, 2012, NY, USA. Academy of Behavioural Finance & Economics (ABF), 2012. pp. 63-65
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Henker, J, Henker, T & Tan, D 2012, Realized idiosyncratic volatility and retail investors. in Proceedings of the 2012 Annual Meeting of the Academy of Behavioral Finance and Economics, September 18-21, 2012, NY, USA. Academy of Behavioural Finance & Economics (ABF), pp. 63-65, The 2012 Annual Meeting of the Academy of Behavioral Finance & Economics , New York, United States, 18/09/12.

Realized idiosyncratic volatility and retail investors. / Henker, Julia; Henker, Thomas; Tan, Deborah.

Proceedings of the 2012 Annual Meeting of the Academy of Behavioral Finance and Economics, September 18-21, 2012, NY, USA. Academy of Behavioural Finance & Economics (ABF), 2012. p. 63-65.

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review

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AB - Extract: Recent research demonstrates a negative relation between idiosyncratic risk and future return for some stocks. We explain this market irregularity with a behavioral finance argument. We argue that high idiosyncratic volatility stocks present a preferred trading habitat for individual investors because of the lottery-type qualities of these stocks. Consequently, individuals overvalue these stocks, reducing future return levels. Our findings that the negative idiosyncratic volatility premium is concentrated in the portion of the market that is characterized by relatively high retail investor trading support our argument. Moreover, we find that the phenomenon is particularly strong for daily returns and realized volatility, the result, we contend, of the activities of individual day traders.

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Henker J, Henker T, Tan D. Realized idiosyncratic volatility and retail investors. In Proceedings of the 2012 Annual Meeting of the Academy of Behavioral Finance and Economics, September 18-21, 2012, NY, USA. Academy of Behavioural Finance & Economics (ABF). 2012. p. 63-65