Idiosyncratic volatility, fundamentals, and institutional herding: Evidence from the Japanese stock market [An article from: Pacific-Basin Finance Journal]

This digital document is a journal article from Pacific-Basin Finance Journal, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Using Japanese data from 1975 to 2003, we show that both institutional herding and firm earnings are positively related to idiosyncratic volatility. We reject the hypothesis that institutional investors herd toward stocks with high idiosyncratic volatility and systematic risk. Our results suggest that a behavior story may explain the negative premium earned by high idiosyncratic volatility stocks found by Ang et al. [Ang, Andrew, Hodrick, Robert J., Yuhang Xing, Xiaoyan Zhang, 2004. The cross-section of volatility and expected returns, Forthcoming Journal of Finance]. We also find that the dispersions of change in institutional ownership and return-on-asset move together with the market aggregate idiosyncratic volatility over time. Our results suggest that investor behavior and stock fundamentals may both help explain the time-series pattern of market aggregate idiosyncratic volatility.