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The memory of stock return volatility: asset pricing implications

Nguyen, D. B. B., Prokopczuk, M. and Sibbertsen, P. (2019) The memory of stock return volatility: asset pricing implications. Journal of Financial Markets. ISSN 1386-4181 (In Press)

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To link to this item DOI: 10.1016/j.finmar.2019.01.002

Abstract/Summary

We examine long memory volatility in the cross-section of stock returns. We show that long memory volatility is widespread in the United States and that the degree of memory can be related to firm characteristics, such as market capitalization, book-to-market ratio, prior performance, and price jumps. Long memory volatility is negatively priced in the cross-section. Buying stocks with shorter memory and selling stocks with longer memory in volatility generates significant excess returns of 1.71% per annum. Consistent with theory, we find that the volatility of stocks with longer memory is more predictable than stocks with shorter memory. This makes the latter more uncertain, which is compensated for with higher average returns.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:82171
Publisher:Elsevier

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