Table 6 Idiosyncratic volatility and...

Table 6

Idiosyncratic volatility and return: portfolios

	IVOL:Q1	IVOL:Q2	IVOL:Q3	IVOL:Q4	IVOL:Q5	Q5-Q1
All	0.1412** (6.23)	0.1471** (6.16)	0.1530** (5.51)	0.1529** (4.93)	0.1847** (4.98)	0.0435 (1.33)
LnP/V(t):Q1	0.1630** (5.46)	0.1701** (5.80)	0.1946** (6.31)	0.2001** (5.70)	0.2841** (6.22)	0.1212** (2.80)
LnP/V(t):Q2	0.1510** (6.44)	0.1602** (5.89)	0.1683** (5.49)	0.1650** (5.18)	0.1872** (4.80)	0.0362 (1.18)
LnP/V(t):Q3	0.1402** (6.65)	0.1433** (5.80)	0.1573** (5.42)	0.1610** (4.90)	0.1604** (4.46)	0.0201 (0.66)
LnP/V(t):Q4	0.1342** (6.21)	0.1395** (6.59)	0.1348** (5.14)	0.1372** (4.41)	0.1337** (3.67)	−0.0005 (−0.01)
LnP/V(t):Q5	0.1180** (5.40)	0.1244** (5.03)	0.1161** (3.98)	0.1105** (3.45)	0.0652^† (1.79)	−0.0528 (−1.51)
LnP/V(t + 1):Q1	0.0167 (0.63)	−0.0211 (−0.79)	−0.0688* (−2.24)	−0.1154** (−3.07)	−0.1209** (−3.47)	−0.1376** (−4.70)
LnP/V(t + 1):Q2	0.0805** (2.95)	0.0557* (2.19)	0.0404 (1.63)	0.0342 (1.19)	0.0748* (2.10)	−0.0057 (−0.17)
LnP/V(t + 1):Q3	0.1339** (4.95)	0.1372** (5.81)	0.1311** (4.85)	0.1422** (5.09)	0.1959** (5.46)	0.0620^† (1.75)
LnP/V(t + 1):Q4	0.1853** (6.49)	0.2041** (7.59)	0.2306** (7.99)	0.2464** (7.50)	0.3428** (8.05)	0.1575** (3.82)
LnP/V(t + 1):Q5	0.2341** (7.51)	0.3052** (10.31)	0.4151** (10.13)	0.5069** (8.46)	0.6955** (8.28)	0.4614** (5.29)

	IVOL:Q1	IVOL:Q2	IVOL:Q3	IVOL:Q4	IVOL:Q5	Q5-Q1
All	0.1412** (6.23)	0.1471** (6.16)	0.1530** (5.51)	0.1529** (4.93)	0.1847** (4.98)	0.0435 (1.33)
LnP/V(t):Q1	0.1630** (5.46)	0.1701** (5.80)	0.1946** (6.31)	0.2001** (5.70)	0.2841** (6.22)	0.1212** (2.80)
LnP/V(t):Q2	0.1510** (6.44)	0.1602** (5.89)	0.1683** (5.49)	0.1650** (5.18)	0.1872** (4.80)	0.0362 (1.18)
LnP/V(t):Q3	0.1402** (6.65)	0.1433** (5.80)	0.1573** (5.42)	0.1610** (4.90)	0.1604** (4.46)	0.0201 (0.66)
LnP/V(t):Q4	0.1342** (6.21)	0.1395** (6.59)	0.1348** (5.14)	0.1372** (4.41)	0.1337** (3.67)	−0.0005 (−0.01)
LnP/V(t):Q5	0.1180** (5.40)	0.1244** (5.03)	0.1161** (3.98)	0.1105** (3.45)	0.0652^† (1.79)	−0.0528 (−1.51)
LnP/V(t + 1):Q1	0.0167 (0.63)	−0.0211 (−0.79)	−0.0688* (−2.24)	−0.1154** (−3.07)	−0.1209** (−3.47)	−0.1376** (−4.70)
LnP/V(t + 1):Q2	0.0805** (2.95)	0.0557* (2.19)	0.0404 (1.63)	0.0342 (1.19)	0.0748* (2.10)	−0.0057 (−0.17)
LnP/V(t + 1):Q3	0.1339** (4.95)	0.1372** (5.81)	0.1311** (4.85)	0.1422** (5.09)	0.1959** (5.46)	0.0620^† (1.75)
LnP/V(t + 1):Q4	0.1853** (6.49)	0.2041** (7.59)	0.2306** (7.99)	0.2464** (7.50)	0.3428** (8.05)	0.1575** (3.82)
LnP/V(t + 1):Q5	0.2341** (7.51)	0.3052** (10.31)	0.4151** (10.13)	0.5069** (8.46)	0.6955** (8.28)	0.4614** (5.29)

Note(s): This table reports the time-series average of equal-weighted returns for portfolios formed by sorting stocks independently on idiosyncratic volatility (IVOL) and the overvaluation likelihood measure (LnP/V). This table also reports the time-series average of equal-weighted returns for portfolios formed by sorting only on IVOL. $I V O L$ is the idiosyncratic volatility measure, defined in Appendix 2. $I V O L : Q i$ indicates the i-th quintile of $I V O L$ ⁠, i = 1 to 5. $L n P / V (t)$ is the difference between the natural logarithm of the market value of equity on 06/30 of t and the natural logarithm of the estimated intrinsic value of equity obtained using the latest accounting information available by 06/30 of t, t = 1966 to 2015 (see Appendix 1). $L n P / V (t) : Q i$ indicates the i-th quintile of $L n P / V (t)$ , i = 1 to 5. The time-series average of portfolio returns is calculated as $α_{p}$ in the following regression: $R_{p, t \to t + 1} = α_{p} + ε_{p, t \to t + 1}$

where $p$ denotes portfolio $p$ ⁠; $R_{p, t \to t + 1}$ is the equal-weighted average of returns over 07/01 of t through 06/30 of t + 1 for firms in portfolio $p$ ⁠; and $ε_{p, t \to t + 1}$ is the residual. T-statistics in parentheses are adjusted for Newey-West autocorrelations of three lags. **, *, and † denote statistical significance at the 1, 5, and 10% levels, respectively, using a 2-tailed test

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