Good Volatility, Bad Volatility, and the Cross Section of Stock Returns

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  • Tim Bollerslev
  • Sophia Zhengzi Li, Rutgers University
  • ,
  • Bingzhi Zhao, Numeric Investors LLC

Based on intraday data for a large cross section of individual stocks and newly developed econometric procedures, we decompose the realized variation for each of the stocks into separate so-called realized up and down semi-variance measures, or "good" and "bad" volatilities, associated with positive and negative high-frequency price increments, respectively. Sorting the individual stocks into portfolios based on their normalized good minus bad volatilities results in economically large and highly statistically significant differences in the subsequent portfolio returns. These differences remain significant after controlling for other firm characteristics and explanatory variables previously associated with the cross section of expected stock returns.

OriginalsprogEngelsk
TidsskriftJournal of Financial and Quantitative Analysis
Vol/bind55
Nummer3
Sider (fra-til)751-781
ISSN0022-1090
DOI
StatusUdgivet - maj 2020

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