Is there a low-risk anomaly across countries?

Zaremba, Adam

doi:10.1007/s40822-015-0036-3

Cited by 25 publications

(8 citation statements)

References 88 publications

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“…In this case, higher volatility does not translate to positive implications for investors. This may explain why no low risk anomaly is observable at the index level (Zaremba, 2015c). Note: The Low to High columns refer to portfolios formed on past skewness.…”

Section: Resultsmentioning

confidence: 99%

Skewness preference across countries

Zaremba¹,

Nowak²

2015

BEH

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Prospect theory implies that assets with positively skewed returns should be traded at premium to assets with negative skewness. We hypothesize that in the integrated financial markets this concept should also hold for the entire country equity portfolios. This article examines the linkages between the country-level expected returns and past skewness. We evidence a robust negative relationship between skewness and future returns. The phenomenon is most significant within large, liquid, developed, and open stock markets. Additional sorts on skewness can improve performance of both crosscountry value and momentum strategies. The study is based on the sorting and cross-sectional tests conducted within a sample of 78 country equity markets for years 1999-2014.

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Section: Resultsmentioning

confidence: 99%

Skewness preference across countries

Zaremba¹,

Nowak²

2015

BEH

Self Cite

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“…Chua et al [13] studies found that the expected stock returns are positively related to the idiosyncratic volatility. A sizable number of studies by Jiang and Lee [32], Malkiel and Xu [6], Drew et al [33], Huang et al [34] and Zaremba [35] also found positive relationship between expected returns and idiosyncratic volatility. Similarly, other set of studies by Ang et al [9,10], Guo and Savickas [11], Frieder and Jiang [12], Chua et al [13] and Peterson and Smedeman [36] found that idiosyncratic volatility is negatively related to the expect stock returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Is idiosyncratic risk ignored in asset pricing: Sri Lankan evidence?

Maiti

2019

Futur Bus J

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The present study focused on one of the important South Asian nations-Sri Lanka-to examine the role of idiosyncratic volatility in asset prices. A four-factor model with idiosyncratic volatility was designed for capturing the market, size, value and idiosyncratic risk yields better than Fama and French's (J Financ Econ 33:3-56, 1993) three-factor model and performance of the model. Fama-MacBeth's cross-sectional regression, residual graphs and GRS test all confirm the superiority of four-factor model over 2 three-factor models. For all MC-and IVOL-based portfolios, idiosyncratic volatility is negatively related to the expected returns and positively related for all PB-based portfolios. Finally, study findings confirm that there is a high importance for idiosyncratic volatility risk factor while considering investment decision in Colombo stock exchange. Hence, investor should compensate for holding such risk factors in the portfolio.

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“…Hou and Loh (2016) argued that existing literature provided explanations that could only explain less than 10% of the idiosyncratic volatility. Zaremba (2016) also studied the parallels between the country-level and the stock-level low-risk anomalies and found that country-level returns were positively related to standard deviation, value at risk, and idiosyncratic volatility. Saengchote (2017) confirmed that the abnormal returns associated with investment in low-beta stocks were significant and robust in Thai stock market.…”

Section: Introductionmentioning

confidence: 99%

The Short-Term and Long-Term Trade-Off Between Risk and Return: Chaos vs Rationality

Chang

Shi

et al. 2019

Journal of Business Economics and Management

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This paper used the composite construction method proposed by Haugen (1999) and its application by Zhao and Wang (2010) for the Chinese stock market. Utilizing the Shanghai A-share market stocks data, this paper first selected the shares listed on the Shanghai Stock Exchange during January 1, 1997 to December 31, 2017. A portfolio was then built according to the mean variance model of portfolio structure, and simulation results were analysed using the Wilcoxon Signed Rank Test. The relationship between risk and return in the long and short term was explored. Results indicated no significant relationship between the risk and return of the stock portfolio in the short run, which reflects the complexity of the Chinese stock market. However, in the long run, the risk and return of the stock portfolios are positively correlated, which means that high returns are accompanied by high risks, indicating that the stock market will eventually return to rationality. In other words, the A-share stock market will eventually return to be value-driven and the short-term speculators would be outweighed by long-term value investors.

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Is there a low-risk anomaly across countries?

Cited by 25 publications

References 88 publications

Skewness preference across countries

Skewness preference across countries

Is idiosyncratic risk ignored in asset pricing: Sri Lankan evidence?

The Short-Term and Long-Term Trade-Off Between Risk and Return: Chaos vs Rationality

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