Time: 13:30, April 15, 2014 (Tuesday)

Venue: Room 303, Starr Building　　　　　

Moderator: Dr. Yan LUO, Department of Finance, School of Management, Fudan University　

Topic: Abnormal Idiosyncratic Volatility and Expected Returns

Speaker: Prof. Chu Zhang Professor of Finance, The Hong Kong University of Science and Technology

Abstract: Using the difference in idiosyncratic volatility between pre-earnings-announcement and non-earnings-announcement periods, we define abnormal idiosyncratic volatility, AIV, as an information risk measure to capture information asymmetry suffered by uninformed investors to trade with informed or skillful investors. We show that AIV is positively associated with both abnormal insider trading and short selling during earnings announcements, while AIV is weakly related to other conventional measures of information risk, such as earnings surprises, the probability of informed trading, analyst coverage, etc., and it is more dynamic than the other conventional measures. Most importantly, our findings show that stocks with high AIV earn both economically and statistically larger future returns than stocks with low AIV, thereby supporting the notion that information risk is priced.