The existing literature finds conflicting results on the cross-sectional relation between expected returns and idiosyncratic volatility. We contend that at the firm level, the sample correlation between unexpected returns and expected idiosyncratic volatility can cloud the true relation between the expected return and expected idiosyncratic volatility. We show strong evidence that unexpected idiosyncratic volatility is positively related to unexpected returns. Using unexpected idiosyncratic volatility to control for unexpected returns, we find expected idiosyncratic volatility to be significantly and positively related to expected returns. This result holds after controlling for various firm characteristics, and it is robust across different sample periods. Copyright (c) 2010 The Southern Finance Association and the Southwestern Finance Association.

The purpose of this paper is to provide a comprehensive analysis of corporate valuation around the world. Specifically, we (i) document and compare corporate valuation around the world, and (ii) identify the key factors that drive cross-country differences in valuation. In doing so, we utilize the country-level Tobin's q (CTQ), computed as the ratio of the aggregate market value to book value of all assets held by all public firms domiciled in a country, which amounts to the Tobin's q for the 'market portfolio' of the country. The key findings of the paper are: First, CTQ varies greatly across countries, ranging from 0.73 for Venezuela to 2.11 for Finland, with the international mean of 1.30 during our sample period 1999-2004. Despite the steady integration of the world economy in recent years, corporate valuation remains starkly different across countries. Second, apart from the effect of corporate governance, cross-country differences in corporate valuation are significantly driven by the growth options of countries represented by the R&D intensities, capital expenditures, and GDP growth. In addition, the degree of capital market openness has a significant, independent effect on valuation. Third, our regression analyses show that CTQ varies directly with shareholder rights, enforcement of insider trading laws, GDP growth, R&D intensity, and the degree of capital market openness. The key findings remain robust to the inclusion of inflation and industry effects.

This figure plots the time series of 10-year moving average of monthly profits for strategy 2-B. Throughout the entire sample period, the 10-year moving average of profits stayed around 0.015 to 0.02 (this means that if we scale strategy 2-B to have the same volatility as a $1 investment in the S&P Index, the average profit per month is between $0.015 and $0.02).

We test the efficiency of the US Treasury market by comparing the performance of two yield-spread mean-reverting trades, a 'riding the yield curve' trade and a comparable strategy in the S&P Index. From 1969 to 2000, 'riding the yield curve' and the S&P index are approximately equidistant from the efficient frontier, while one yield-spread trade was highly profitable, and outperformed an equivalent investment in the S&P index by 4.3 times. The large excess returns suggest possible market inefficiencies in the market. Nevertheless, market efficiency in the US Treasury bond market appears to have improved considerably since the late 1980s, and the scope for excess returns has diminished.

Most Asian countries have adopted bonus-malus systems (BMS) in automobile insurance. We evaluate the toughness towards consumers of 16 Asian BMS and its correlation with cultural and economic variables. We use principal components analysis to define a Maturity Index of insurance markets and find supporting evidence for a conjecture that, as markets become more mature and policyholders more sophisticated, countries adopt tougher BMS. In addition, we find, using regression analysis, that using a Common Law legal system is a crucial factor in BMS design. Cultural variables, such as uncertainty avoidance, also influence BMS.