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Aggregate volatility risk and the cross-section of stock returns: Australian evidence

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  • Mai, Van Anh (Vivian)
  • Ang, Tze Chuan ‘Chewie’
  • Fang, Victor

Abstract

This study examines the relation between aggregate volatility risk and the cross-section of stock returns in Australia. We use a stock's sensitivity to innovations in the ASX200 implied volatility (VIX) as a proxy for aggregate volatility risk. Consistent with theoretical predictions, aggregate volatility risk is negatively related to the cross-section of stock returns only when market volatility is rising. The asymmetric volatility effect is persistent throughout the sample period and is robust after controlling for size, book-to-market, momentum, and liquidity issues. There is some evidence that aggregate volatility risk is a priced factor, especially in months with increasing market volatility.

Suggested Citation

  • Mai, Van Anh (Vivian) & Ang, Tze Chuan ‘Chewie’ & Fang, Victor, 2016. "Aggregate volatility risk and the cross-section of stock returns: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 134-149.
    • Handle: RePEc:eee:pacfin:v:36:y:2016:i:c:p:134-149
    DOI: 10.1016/j.pacfin.2015.12.006
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