This paper investigates a largely overlooked segment of U.S. equity markets, listed penny stocks. We find that: (i) the average percentage of short interest ratio of listed penny stocks is 14% which is not significantly different from that of NYSE- and NASDAQ-listed stocks ranging from 10% to...

We conduct comprehensive analyses of the return characteristics of stock portfolios sorted by idiosyncratic volatility. We show that the relationship between idiosyncratic volatility and expected stock returns depends on whether the portfolio is composed of stocks with extreme performance and...

The empirical evidence on the cross-sectional relation between idiosyncratic risk and expected stock returns is mixed. We demonstrate that the omission of the previous month's stock returns can lead to a negatively biased estimate of the relation. The magnitude of the omitted variable bias...