Sawyer Capital ManagementSolving The Volatility Puzzle – Sawyer Capital Management https://www.sawcap.com Evolutionize Web Site Tue, 14 Nov 2017 19:30:19 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 Solving The Volatility Puzzle https://www.sawcap.com/2016/05/30/solving-the-volatility-puzzle/ https://www.sawcap.com/2016/05/30/solving-the-volatility-puzzle/#respond Mon, 30 May 2016 09:00:46 +0000 http://evolvemypractice.com/?p=2827 One of the interesting puzzles in finance is that stocks with greater idiosyncratic volatility (IVOL) have produced lower returns. This is an anomaly, because idiosyncratic volatility is viewed as a risk factor—greater volatility should be rewarded with higher, not lower, returns. Robert Stambaugh, Jianfeng Yu and Yu Yuan, authors of the study “Arbitrage Asymmetry and...

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]]> One of the interesting puzzles in finance is that stocks with greater idiosyncratic volatility (IVOL) have produced lower returns. This is an anomaly, because idiosyncratic volatility is viewed as a risk factor—greater volatility should be rewarded with higher, not lower, returns.

Robert Stambaugh, Jianfeng Yu and Yu Yuan, authors of the study “Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle,” which appears in the October 2015 issue of The Journal of Finance, provide an explanation—and the evidence supporting it—for why the anomaly persists.

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