Is information risk priced? Evidence from abnormal idiosyncratic volatility

Yang, Yung Chiang ORCID: 0000-0002-5844-4515, Zhang, Bohui and Zhang, Chu (2020) Is information risk priced? Evidence from abnormal idiosyncratic volatility. Journal of Financial Economics, 135 (2). pp. 528-554.

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Official URL: http://dx.doi.org/10.1016/j.jfineco.2019.06.013

Abstract

We propose a new, price-based measure of information risk called abnormal idiosyncratic volatility (AIV) that captures information asymmetry faced by uninformed investors. AIV is the idiosyncratic volatility prior to information events in excess of normal levels. Using earnings announcements as information events, we show that AIV is positively associated with informed return run-ups, abnormal insider trading, short selling, and institutional trading during pre-earnings-announcement periods. We find that stocks with high AIV earn economically and statistically larger future returns than stocks with low AIV. Taken together, our findings support the notion that information risk is priced.

Item Type:	Article
Depositing User:	Symplectic Admin
Date Deposited:	23 Sep 2020 09:21
Last Modified:	28 Nov 2023 10:30
DOI:	10.1016/j.jfineco.2019.06.013
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3102190