The Long and Short of the Vol Anomaly

Abstract:

On average, stocks with high prior-period volatility underperform those with low prior-period volatility, but that comparison is misleading. As we show, high volatility is an indicator of both positive and negative future abnormal performance. Among high volatility stocks, those with low short interest actually experience extraordinary positive returns, while those with high short interest experience equally extraordinary negative returns. The fact that publicly available information on aggregate short selling can be used to predict positive and negative abnormal returns of great magnitude points to a large-scale market inefficiency. Further, based on the evidence in this study, the current “low vol” investing fad has little or no real foundation.

 

Read more: Jordan, Bradford D. and Riley, Timothy B., The Long and Short of the Vol Anomaly (May 2014). Available at SSRN: http://ssrn.com/abstract=2442902 or http://dx.doi.org/10.2139/ssrn.2442902

 

Keywords: Volatility, Short Interest, Anomaly, Market Efficiency, Abnormal Returns

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s