A Study of Volatility Risk

Kalai Lamia; Jilani Faouzi

doi:doi:10.11648/j.jfa.20140201.11

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A Study of Volatility Risk

Kalai Lamia, Jilani Faouzi

Published in Journal of Finance and Accounting (Volume 2, Issue 1)

Received: 3 January 2014 Published: 30 January 2014

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Abstract

Time variations of market volatility considerably affect investments risk evaluation and prediction of future returns. They are presented as a source of systemic risk to which is added a risk related to stocks’ sensitivity to volatility shocks. Analysis of the relationship between stocks volatility and market volatility allows for determining whether stocks’ sensitivities to volatility shocks may estimate market’s future risk price. Volatility shocks are defined in terms of volatility risk hedging factors, when market volatility risk price is high and for stocks that are positively correlated to these hedging factors, the value of returns is expected to be low. Idiosyncratic volatility is on the other hand a variable omitted from volatility total risk. If market volatility risk is a missing component of systematic risk, standard models should mis-price portfolios sorted by idiosyncratic volatility because these models do not include factor loadings measuring exposure to market volatility risk.

Published in	Journal of Finance and Accounting (Volume 2, Issue 1)
DOI	10.11648/j.jfa.20140201.11
Page(s)	1-10
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Volatility Shocks, Risk Factors, Hedging Factors, Systemic Volatility, Idiosyncratic Volatility

References

[1]	J. Campbell and Hentshel. L (1992), "No news is Good news: An asymmetric model of changing volatility in stock return", Journal of financial economics, vol 3, pp 281- 318
[2]	L. Glosten, R. Jagannathan and D. Runkle (1993), "On the relation between the expected value and the volatility of the nominal excess return on stock", Journal of fianance 48,5, pp 1779-1801.
[3]	A. Ang, R. Hodrick, X. Yuhang and Z. Xiaoyan (2004), "The cross section of volatility and expected returns", NBER working paper series.
[4]	C. Harvey and A. Siddique (2000), "Conditional skewness in asset pricing Tests", Journal of finance, vol 3, pp 1263- 1295.
[5]	E. Fama and K. French (1996), "Multifactor explanations of asset pricing anomalies", Journal of Finance, Vol 51, pp 55-84.
[6]	V. Huang, L. Qianqiu, S. Rhee and L. Zhang (2011), "Another Look at Idiosyncratic Volatility and Expected Returns", Journal Of Investment Management (JOIM), Fourth Quarter 2011.
[7]	V. Acharya , H. Almeida and M. Campello (2012) , "Aggregate Risk and the Choice between Cash and Lines of Credit" , CEPR Discussion Paper No. DP8913
[8]	R F. Stambaugh , J. Yu and Y. Yuan (2012), "Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle" NBER Working Paper No. w18560.
[9]	S.A. Anthonisz (2012), "Asset Pricing with Partial-Moments" ,Journal of Banking and Finance, Vol. 36, No. 7, pp 214-221.
[10]	D. Brown and M. Ferreira (2003), "The information in the idiosyncratic volatility of small firms", Working paper, University of Wisconsin-Madison.
[11]	E. Fama and J. MacBeth (1973), "Risk return and equilibrium: Empirical tests", Journal of political economy 71,607-636.
[12]	N. Jegadeesh and S. Titman (2001), "Profitability of momentum strategies: An evaluationof alternative explanations", Journal of Finance, Vol 56, pp 699-720
[13]	M. Rockinger and E. Jondeau (2000), "Conditional volatility, skewness and kurtosis: existence and persistence", Working paper
[14]	V. Torous, and Yan (2004), "On Predicting Stock Return whith nearly integrated explanatory variables, Journal of Business", Vol 77,pp 973-966.

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APA Style

Kalai Lamia, Jilani Faouzi. (2014). A Study of Volatility Risk. Journal of Finance and Accounting, 2(1), 1-10. https://doi.org/10.11648/j.jfa.20140201.11

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ACS Style

Kalai Lamia; Jilani Faouzi. A Study of Volatility Risk. J. Finance Account. 2014, 2(1), 1-10. doi: 10.11648/j.jfa.20140201.11

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AMA Style

Kalai Lamia, Jilani Faouzi. A Study of Volatility Risk. J Finance Account. 2014;2(1):1-10. doi: 10.11648/j.jfa.20140201.11

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@article{10.11648/j.jfa.20140201.11,
  author = {Kalai Lamia and Jilani Faouzi},
  title = {A Study of Volatility Risk},
  journal = {Journal of Finance and Accounting},
  volume = {2},
  number = {1},
  pages = {1-10},
  doi = {10.11648/j.jfa.20140201.11},
  url = {https://doi.org/10.11648/j.jfa.20140201.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20140201.11},
  abstract = {Time variations of market volatility considerably affect investments risk evaluation and prediction of future returns. They are presented as a source of systemic risk to which is added a risk related to stocks’ sensitivity to volatility shocks. Analysis of the relationship between stocks volatility and market volatility allows for determining whether stocks’ sensitivities to volatility shocks may estimate market’s future risk price. Volatility shocks are defined in terms of volatility risk hedging factors, when market volatility risk price is high and for stocks that are positively correlated to these hedging factors, the value of returns is expected to be low. Idiosyncratic volatility is on the other hand a variable omitted from volatility total risk. If market volatility risk is a missing component of systematic risk, standard models should mis-price portfolios sorted by idiosyncratic volatility because these models do not include factor loadings measuring exposure to market volatility risk.},
 year = {2014}
}

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TY  - JOUR
T1  - A Study of Volatility Risk
AU  - Kalai Lamia
AU  - Jilani Faouzi
Y1  - 2014/01/30
PY  - 2014
N1  - https://doi.org/10.11648/j.jfa.20140201.11
DO  - 10.11648/j.jfa.20140201.11
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 1
EP  - 10
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20140201.11
AB  - Time variations of market volatility considerably affect investments risk evaluation and prediction of future returns. They are presented as a source of systemic risk to which is added a risk related to stocks’ sensitivity to volatility shocks. Analysis of the relationship between stocks volatility and market volatility allows for determining whether stocks’ sensitivities to volatility shocks may estimate market’s future risk price. Volatility shocks are defined in terms of volatility risk hedging factors, when market volatility risk price is high and for stocks that are positively correlated to these hedging factors, the value of returns is expected to be low. Idiosyncratic volatility is on the other hand a variable omitted from volatility total risk. If market volatility risk is a missing component of systematic risk, standard models should mis-price portfolios sorted by idiosyncratic volatility because these models do not include factor loadings measuring exposure to market volatility risk.
VL  - 2
IS  - 1
ER  -

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Author Information

Kalai Lamia

Graduate Institute of Business and Accounting of Bizerta, University of Carthage, University of Tunis El Manar, Faculty of economic Sciences and Management of Tunisia
Jilani Faouzi

Graduate Institute of Business and Accounting of Bizerta, University of Carthage, University of Tunis El Manar, Faculty of economic Sciences and Management of Tunisia

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APA Style

Kalai Lamia, Jilani Faouzi. (2014). A Study of Volatility Risk. Journal of Finance and Accounting, 2(1), 1-10. https://doi.org/10.11648/j.jfa.20140201.11

Copy | Download

ACS Style

Kalai Lamia; Jilani Faouzi. A Study of Volatility Risk. J. Finance Account. 2014, 2(1), 1-10. doi: 10.11648/j.jfa.20140201.11

Copy | Download

AMA Style

Kalai Lamia, Jilani Faouzi. A Study of Volatility Risk. J Finance Account. 2014;2(1):1-10. doi: 10.11648/j.jfa.20140201.11

Copy | Download

@article{10.11648/j.jfa.20140201.11,
  author = {Kalai Lamia and Jilani Faouzi},
  title = {A Study of Volatility Risk},
  journal = {Journal of Finance and Accounting},
  volume = {2},
  number = {1},
  pages = {1-10},
  doi = {10.11648/j.jfa.20140201.11},
  url = {https://doi.org/10.11648/j.jfa.20140201.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20140201.11},
  abstract = {Time variations of market volatility considerably affect investments risk evaluation and prediction of future returns. They are presented as a source of systemic risk to which is added a risk related to stocks’ sensitivity to volatility shocks. Analysis of the relationship between stocks volatility and market volatility allows for determining whether stocks’ sensitivities to volatility shocks may estimate market’s future risk price. Volatility shocks are defined in terms of volatility risk hedging factors, when market volatility risk price is high and for stocks that are positively correlated to these hedging factors, the value of returns is expected to be low. Idiosyncratic volatility is on the other hand a variable omitted from volatility total risk. If market volatility risk is a missing component of systematic risk, standard models should mis-price portfolios sorted by idiosyncratic volatility because these models do not include factor loadings measuring exposure to market volatility risk.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - A Study of Volatility Risk
AU  - Kalai Lamia
AU  - Jilani Faouzi
Y1  - 2014/01/30
PY  - 2014
N1  - https://doi.org/10.11648/j.jfa.20140201.11
DO  - 10.11648/j.jfa.20140201.11
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 1
EP  - 10
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20140201.11
AB  - Time variations of market volatility considerably affect investments risk evaluation and prediction of future returns. They are presented as a source of systemic risk to which is added a risk related to stocks’ sensitivity to volatility shocks. Analysis of the relationship between stocks volatility and market volatility allows for determining whether stocks’ sensitivities to volatility shocks may estimate market’s future risk price. Volatility shocks are defined in terms of volatility risk hedging factors, when market volatility risk price is high and for stocks that are positively correlated to these hedging factors, the value of returns is expected to be low. Idiosyncratic volatility is on the other hand a variable omitted from volatility total risk. If market volatility risk is a missing component of systematic risk, standard models should mis-price portfolios sorted by idiosyncratic volatility because these models do not include factor loadings measuring exposure to market volatility risk.
VL  - 2
IS  - 1
ER  -

Copy | Download