Abstract
We estimate the widely documented idiosyncratic volatility premium at a statistically and economically significant −7.27 basis points monthly among euro area stocks. Furthermore, we test the robustness of Hou and Loh (2016; HL) US findings on the decomposition of the premium in fractions related to lottery characteristics and market frictions. In line with HL, we are able to explain approximately 30% of the anomaly with a balanced contribution between the two competing explanations. The bid–ask spread plays a large role in explaining the anomaly in the euro area, while HL find no consistent evidence for its importance in the US.
Full Text
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call