Essays in empirical asset pricing | Posted on:2012-09-12 | Degree:Ph.D | Type:Dissertation | University:The University of Wisconsin - Madison | Candidate:Boquist, Alexander Wilhelm | Full Text:PDF | GTID:1459390008495176 | Subject:Economics | Abstract/Summary: | | This dissertation examines the relationship between idiosyncratic volatility, liquidity, extreme 1-day returns, short sales and stock returns. In the first chapter, I examine the hump-shaped relationship between idiosyncratic volatility (IVOL) and subsequent returns that is well-documented in the finance literature. I first show that this relationship is due to illiquid firms. There is a flat relationship between IVOL and subsequent raw returns when only liquid firms are considered. Firms with high liquidity and low IVOL have significantly positive risk-adjusted subsequent returns. I find that removing the most extreme 1-day returns significantly reduces the negative relationship between the highest and lowest IVOL quintiles and subsequent returns. I then do a battery of conditional double-sorts, and find that firms with high IVOL but smaller extreme 1-day returns outperform firms with high IVOL and larger 1-day extreme returns.;In Chapter 2, I examine the relationship between the distribution of short interest and liquidity (Days-To-Cover) and stock returns. I use this relationship to determine whether or not there is any evidence of "short squeeze" predatory trading on the NYSE. I do not find strong evidence of predatory trading, but I do take a close look at the relationship between short sales data and returns. I find that firms with large increases in short interest have high contemporaneous returns. By analyzing the daily return time series, I present evidence that this phenomenon is due to an increase in short sales as a response to large positive returns. In addition, I find that there are some profitable trading strategies based on past short interest and Days-To-Cover in my sample. | Keywords/Search Tags: | Short, Returns, Relationship, IVOL, Firms with high | | Related items |
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