Earticle

초록

영어

The discount rate determining a stock's sale price in the future—that is, the rate that discounts postsale cashflows—remains uncertain until the future sale date. As the stock price is a convex function of the discount rate, this discount-rate uncertainty raises the current stock price and thus lowers the stock’s expected return. In this paper, we gauge the economic importance of this discount-rate uncertainty effect. Specifically, we examine whether: (1) there is a negative cross-sectional relation between a stock’s return volatility and its future return, (2) the negative relation is more pronounced among stocks with a shorter holding period, (3) the negative relation is stronger when the per-share price is higher, and (4) the negative relation persists even when investor sentiment is low and even among stocks with low arbitrage costs. The second prediction is on the grounds that the future sale price is more important in stock valuation when the stock is sold in the nearer future. The third prediction stems from the fact that the convexity of a stock’s price is greater when the discount rate is initially low, or equivalently, when the price is initially high. The fourth prediction is due to no role of mispricing or market inefficiency in our hypothesis. Using data from the U.S., we find strong support for all the four predictions. Our hypothesis and empirical results thus offer an efficient market-based resolution for the so-called volatility puzzle that stocks with greater volatility earns a lower return in the future.

목차

Abstract
 1. Introduction
 2. Sample and data
 3. Empirical results
  3.1. Baseline specification for the cross-section of stock returns
  3.2. Turnover-sorted sub-samples – First identification
  3.3. Per-share price-sorted sub-sample – Second identification
  3.4. Investor sentiment sub-samples – Third identification
  3.5. Discount-rate uncertainty vs. Lottery-like payoffs
  3.6. Nasdaq results
 4. Conclusions
 References
 Table

키워드

저자

• Dong Wook Lee [ Associate Professor of Finance, Korea University Business School, Seoul, Korea. ]

참고문헌

발행기관

간행물

표지보기 관심저널 등록

• 간행물명

  한국재무학회 학술대회

• 간기

  부정기

• 수록기간

  2006~2024

• 십진분류

  KDC 325 DDC 330