Predictive ability of low-frequency volatility measures: Evidence from the Hong Kong stock markets

•There is a significant negative relationship between the long-term IVOL as well as the MAX and one-month ahead stock returns in the Hong Kong stock market from 1980 to 2015.•Both the IVOL and the MAX effect co-exist in the Hong Kong stock markets.•Our results are robust after controlling for the fi...

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Bibliographic Details
Published in:Finance research letters 2018-09, Vol.26, p.40-46
Main Authors: Gan, Christopher, Nartea, Gilbert V., Wu, Ji (George)
Format: Article
Language:English
Subjects:
Asset pricing
Hong Kong stock markets
Idiosyncratic volatility
Maximum weekly returns
Total volatility
Weekly data
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Summary:•There is a significant negative relationship between the long-term IVOL as well as the MAX and one-month ahead stock returns in the Hong Kong stock market from 1980 to 2015.•Both the IVOL and the MAX effect co-exist in the Hong Kong stock markets.•Our results are robust after controlling for the financial crisis, January effect, and tiny stocks. We employ low-frequency data to estimate historical volatility measures for Hong Kong stocks and examine the relationship between these measures and the one-month ahead stock return over thirty-five years. First, we employ a stock's past three-year weekly return to compute idiosyncratic volatility. Second, we use a stock's past three-year maximum weekly return to create a MAX measure. We find that both IVOL and MAX are significant and negatively related to the one-month ahead stock return. Both effects co-exist in the Hong Kong stock markets and are robust after controlling for the financial crisis, January effect, and tiny stocks.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2017.11.007