Realized idiosyncratic volatility and retail investors

Julia Henker, Thomas Henker, Deborah Tan

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


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)
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 Sept 201221 Sept 2012


ConferenceThe 2012 Annual Meeting of the Academy of Behavioral Finance & Economics
Country/TerritoryUnited States
CityNew York
Internet address


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