The Relationship Between Cross-sectional Idiosyncratic Volatility And Expected Return On Chinese Stock Market

The paper has examined the theory of The Cross-Section of Volatility and Expected Returns published on the Journal of Finance on 2006. The author, Andrew Ang and Robert Hodrick found that the NASDAQ stocks with high sensitivities to innovations in aggregate volatility have low average return. Stock with high idiosyncratic volatility relative to the Fama-French model has abysmally low average return. However, I have not discovered obvious proof of the same conclusion on China A Stock Market between 2005 and 2012. Instead, the opponent phenomenon is true when it was a bull market. We also check the influence of the size, the book-to-market ratio, thevolume, the turnover and the momentum effect on stocks to the result. Finally we gave some behavior financial explanation on this contradiction.