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Idiosyncratic volatility and nominal stock prices: evidence from approximate factor structures

Roger, Patrick; Roger, Tristan; Schatt, Alain (2017), Idiosyncratic volatility and nominal stock prices: evidence from approximate factor structures, Finance Bulletin, 1, 1, p. 30-45. 10.20870/fb.2017.1.1.1853

Type
Article accepté pour publication ou publié
Date
2017
Journal name
Finance Bulletin
Volume
1
Number
1
Pages
30-45
Publication identifier
10.20870/fb.2017.1.1.1853
Metadata
Show full item record
Author(s)
Roger, Patrick
Laboratoire de recherche en gestion et économie [LARGE]
Roger, Tristan
Dauphine Recherches en Management [DRM]
Schatt, Alain
HEC Lausanne [DEEP-HEC]
Abstract (EN)
Approximate factor structures defined by Chamberlain and Rotschild (1983) allow to test whether a given quantitative firm characteristic (the nominal stock price in this paper) is a determinant of the idiosyncratic volatility of stock returns. Our study of 8,000 U.S stocks over the period 1980-2014 shows that small price stocks exhibit a higher idiosyncratic volatility than large price stocks. This relationship is persistent over time and robust to variations in the number of common factors of the approximate factor structure. Moreover, this small price effect does not hide a small-firm effect because it is still valid when we analyze the tercile of large firms. Our result confirms that small price stocks have lottery-type characteristics and, therefore, it is not in line with the efficient market hypothesis.
Subjects / Keywords
stock returns; idiosyncrasy; price effect
JEL
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
E31 - Price Level; Inflation; Deflation

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