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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Expected Profitability, the 52-Week High and the Idiosyncratic Volatility Puzzle
Author(s): McMillan, David
Kambouroudis, Dimos
Khasawneh, Maher
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Keywords: Stock Returns
Idiosyncratic Volatility
Expected Profitability
52-Week High
Date Deposited: 25-Oct-2022
Citation: McMillan D, Kambouroudis D & Khasawneh M (2022) Expected Profitability, the 52-Week High and the Idiosyncratic Volatility Puzzle. European Journal of Finance.
Abstract: We investigate the joint ability of fundamental-based and market-based news to explain the anomalous underperformance of stocks with high idiosyncratic volatility (high IVOL). An out-of-sample prediction of future profitability is adopted as a proxy for fundamental–based news while market-based news is represented by the 52-week high price ratio. A sample of UK stocks over the period January 1996 to December 2017 is analysed. The empirical results indicate that both the fundamental-based projected profitability and the 52-week high price ratio are important in explaining the IVOL anomaly. In contrast, individually, neither variable fully accounts for the anomaly. This relation is more pronounced following a period of high sentiment and during an upmarket. Further results suggest that underreaction lies at the heart of this explanation.
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Notes: Output Status: Forthcoming
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