Economics, Econometrics and Finance
5 years ago

High idiosyncratic risk stocks linked to short-term return reversals

SSRN Electronic Journal
Another Look at the Idiosyncratic Risk and Expected Return
Wei Huang, Qianqiu Liu, S. Ghon Rhee, Liang Zhang

Paper Summary

The study found that there is a negative relationship between idiosyncratic risk (individual stock risk) and stock returns over time. This is mainly driven by a short-term reversal in returns for stocks with the highest idiosyncratic risk. The negative relationship disappears when past returns are taken into account. This suggests that the abnormal positive returns from investing in high-risk stocks can be explained by considering past performance.

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