Table 5. Returns on portfolios on stocks...

Table 5.

Returns on portfolios on stocks sorted by MAX and idiosyncratic risks

		(a) Idiosyncratic Volatility: IV						(b) Idiosyncratic Skewness: Iskew
	Low	2	3	4	High		Low	2	3	4	High
Panel A. Raw returns
M A X
Low	1.560***	1.675***	1.871***	1.760***	1.719***	Low	1.547***	1.613***	1.932***	1.742***	1.751***
2	2.127***	2.016***	1.879***	1.701***	1.485**	2	2.067***	1.948***	1.999***	1.663**	1.534**
3	1.758***	1.885***	1.710**	1.641*	1.236	3	1.752***	2.010***	1.666**	1.538*	1.266
4	1.571**	1.319*	1.366*	0.453	0.515	4	1.619**	1.207*	1.395*	0.352	0.654
High	1.256**	1.055*	0.873	−0.317	−2.548***	High	1.220**	1.074*	0.833	−0.253	−2.555***
		(c) Idiosyncratic volatility: IV						(d) Idiosyncratic skewness: Iskew
Panel B. Abnormal returns
M A X
Low	0.425**	0.439**	0.398**	0.237	0.277	Low	0.408**	0.343**	0.494**	0.245	0.287
2	0.599**	0.549***	0.421**	0.482***	0.497	2	0.515**	0.568***	0.505**	0.482**	0.480
3	0.475***	0.688***	0.921**	1.034	0.449	3	0.513**	1.004***	0.705**	0.870	0.479
4	−0.136	−0.292	0.031	−0.895**	0.439	4	−0.086	−0.443	0.030	−0.858***	0.506
High	−0.400	−0.572	−0.571	−1.863***	−3.869***	High	−0.394	−0.600	−0.597***	−1.839***	−3.843***

		(a) Idiosyncratic Volatility: IV						(b) Idiosyncratic Skewness: Iskew
	Low	2	3	4	High		Low	2	3	4	High
Panel A. Raw returns
M A X
Low	1.560***	1.675***	1.871***	1.760***	1.719***	Low	1.547***	1.613***	1.932***	1.742***	1.751***
2	2.127***	2.016***	1.879***	1.701***	1.485**	2	2.067***	1.948***	1.999***	1.663**	1.534**
3	1.758***	1.885***	1.710**	1.641*	1.236	3	1.752***	2.010***	1.666**	1.538*	1.266
4	1.571**	1.319*	1.366*	0.453	0.515	4	1.619**	1.207*	1.395*	0.352	0.654
High	1.256**	1.055*	0.873	−0.317	−2.548***	High	1.220**	1.074*	0.833	−0.253	−2.555***
		(c) Idiosyncratic volatility: IV						(d) Idiosyncratic skewness: Iskew
Panel B. Abnormal returns
M A X
Low	0.425**	0.439**	0.398**	0.237	0.277	Low	0.408**	0.343**	0.494**	0.245	0.287
2	0.599**	0.549***	0.421**	0.482***	0.497	2	0.515**	0.568***	0.505**	0.482**	0.480
3	0.475***	0.688***	0.921**	1.034	0.449	3	0.513**	1.004***	0.705**	0.870	0.479
4	−0.136	−0.292	0.031	−0.895**	0.439	4	−0.086	−0.443	0.030	−0.858***	0.506
High	−0.400	−0.572	−0.571	−1.863***	−3.869***	High	−0.394	−0.600	−0.597***	−1.839***	−3.843***

Notes:

This table shows the raw returns and Fama-French (1993) three-factor alphas on the double-sorted portfolios. Stock are categorized into 25 (5 × 5) portfolios based on the quintiles breakpoints. We first construct five portfolios based on the MAX, and then sort them into five portfolios based on the idiosyncratic risk within each portfolio. Idiosyncratic volatility (IV) is the variance of the residuals in the regression analysis using equation (2). Idiosyncratic skewness (Iskew) is obtained from the residuals of the regression analysis using equation (3). We calculate the following month’s return on 25 (5 × 5) portfolios. Asterisks denote the statistical significance level: * for 0.1, ** for 0.5, *** for 0.01

[ViewLarge]

Sharing Unavailable