Work

Lottery preferences and the idiosyncratic volatility puzzle

Year: 2018

Type: article

Abstract: We investigate the empirical implications of investors’ heterogeneous preferences for skewness with respect to the idiosyncratic volatility (IVOL) puzzle, that is, the negative correlation between IVOL and mean returns. We show that the IVOL puzzle is stronger: (1) within stocks held primarily by agents with a preference for lottery‐like payoffs; and (2) during economic downturns, when the demand for lottery‐like payoffs is high. These results support recent theories that suggest lottery preferences could be a significant source of the IVOL puzzle.

Source: European Financial Management

DOI: 10.1111/eufm.12178

Authors: Doina C. Chichernea, Haimanot Kassa, Steve L. Slezak

Institutions: University of Denver, United States Securities and Exchange Commission, Miami University, University of Cincinnati

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2905533240

FWCI: 2.31

Cites: 72

Cited by: 19

Related to: 10