A Study on Idiosyncratic Volatility in Lottery Stocks

A Study on Idiosyncratic Volatility in Lottery Stocks

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

Abstract:

The whole volatility of individual stocks consists of systematic volatility, represented by market risks and unsystematic volatility, or idiosyncratic volatility (IVOL) explained by firm-specific risks. According to the traditional asset price theory, IVOL are diversifiable risks and should not be related to future expected returns. However, in recent years, many studies have reported that this IVOL has a significant effect on the expected return. However, there is no agreement on whether it has a positive or negative effect on the expected return. Basically, I investigate the impact of IVOL in low-priced stock markets. I classify stocks in the entire market into five groups according to price and focus on characteristics of the cheapest stock group. Finally, I investigate what differentiated characteristics they have in relation to IVOL, whether there is a speculative investment propensity called a lottery-like preference, and whether the high-risk, high-return principle is established in all price levels of stocks.

 

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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