A Study on the Idiosyncratic Volatility of Low-priced and Lottery Type Stocks

Stuart School of Business research presentation by: David Lee, Stuart Management Science Ph.D. student

Time

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Locations

Room 490, Conviser Law Center, 565 West Adams Street

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A Study on the Idiosyncratic Volatility of Low-priced and Lottery Type Stocks

  • David Lee, Stuart Management Science Ph.D. student

Abstract:

According to traditional pricing theory, the idiosyncratic volatility (IVOL) of a company, which is a diversifiable risk, should not be related to the return on stocks. However, many studies have observed the negative relationship between IVOL and stock return, and they report this phenomenon as an IVOL puzzle. This study observes the effect of stock prices on the relationship between IVOL and return. The main findings of this study are as follows. When the entire stock of the market is divided into five groups according to price, the IVOL puzzle is observed only in the cheapest stock group. This is considered to be a phenomenon caused by investors’ investment in the lottery tendency, not the basis of the company, and an empirical study is conducted.

 

All Illinois Tech faculty, students, and staff are invited to attend.

The Friday Research Presentations series showcases ongoing academic research projects conducted by Stuart School of Business faculty and students, as well as guest presentations by Illinois Tech colleagues, business professionals, and faculty from other leading business schools.

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