Original scientific paper
https://doi.org/10.1080/1331677X.2019.1710229
Price nonsynchronicity, idiosyncratic risk, and expected stock returns in China
Huaigang Long
Adam Zaremba
Yuexiang Jiang
Abstract
We are the first to examine the pricing of relative idiosyncratic
risk, or price nonsynchronicity, in the Chinese equity market.
Using several tests, we investigate returns on more than 2700
companies in the period 1998 to 2018. Contrary to the U.S. evidence,
price nonsynchronicity negatively predicts future returns in
the cross-section. A value-weighted strategy going long (short) the
quintile of least (most) synchronised stocks produces a negative
monthly six-factor model alpha of 0.61%. Also, we demonstrate
that the effect is driven by the low-idiosyncratic volatility anomaly.
Once the absolute idiosyncratic risk is taken into account, the nonsynchronicity
becomes irrelevant for future returns.
Keywords
Nonsynchronicity; synchronicity; idiosyncratic risk; idiosyncratic volatility; return predictability; lowrisk anomaly
Hrčak ID:
254368
URI
Publication date:
9.2.2021.
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