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Does Aggregate Uncertainty Explain Size and Value Anomalies?

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Date
2017
Link to item file
http://dx.doi.org/10.1080/00036846.2016.1257107
Dewey
Organisation et finances d'entreprise
Sujet
Uncertainty; vol-of-vol; VVIX; size; value
JEL code
G.G1.G11; G.G1.G10; G.G0.G01
Journal issue
Applied Economics
Volume
49
Number
32
Publication date
2017
Article pages
3214-3230
Publisher
Taylor and Francis
DOI
http://dx.doi.org/10.1080/00036846.2016.1257107
URI
https://basepub.dauphine.fr/handle/123456789/16335
Collections
  • DRM : Publications
Metadata
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Author
Aboura, Sofiane
1032 Dauphine Recherches en Management [DRM]
Arisoy, Eser
1032 Dauphine Recherches en Management [DRM]
Type
Article accepté pour publication ou publié
Abstract (EN)
This paper examines the impact of aggregate uncertainty on return dynamics of size and book-to-market ratio sorted portfolios. Using VVIX as a proxy for aggregate uncertainty, and controlling for market risk, volatility risk, correlation risk and the variance risk premium, we document significant portfolio return exposures to aggregate uncertainty. In particular, portfolios that contain small and value stocks have significant and negative uncertainty betas, whereas portfolios of large and growth stocks exhibit positive and significant uncertainty betas. Using a quasi-natural experimental setting around the financial crisis, we confirm the differential sensitivity of small versus big and value versus growth portfolios to aggregate uncertainty. We posit that due to their negative uncertainty betas, uncertainty-averse investors demand extra compensation to hold small and value stocks. Our results offer an uncertainty-based explanation to size and value anomalies.

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