Return Reversals, Idiosyncratic Risk and Expected Returns
نویسندگان
چکیده
Bali and Cakici (2006) find no relation between equally-weighted portfolio returns and idiosyncratic risk, whereas Ang et al. (2006a) report a negative relation between value-weighted portfolio returns and idiosyncratic risk. Our analyses demonstrate that both findings can be explained by short-term monthly return reversals. The abnormal positive returns from taking a long (short) position in the low (high) idiosyncratic risk portfolio are fully explained by an additional control variable, the “winners minus losers” portfolio returns, introduced to the conventional threeor fourfactor time-series regression model. The cross-sectional regressions also confirm that no robust and significant relation exists between idiosyncratic risk and expected returns once we control for return reversals All authors are at Department of Financial Economics and Institutions, Shidler College of Business, University of Hawaii at Manoa. Email: [email protected], [email protected], [email protected], [email protected], respectively. * Corresponding author. Department of Financial Economics and Institutions, Shidler College of Business, University of Hawaii at Manoa, 2404 Maile Way, Honolulu, Hawaii, 96822. Tel: 808-956-8736; Email: [email protected]. Return Reversals, Idiosyncratic Risk and Expected Returns
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