We find strong empirical support for the risk-shifting mechanism to account for the puzzling negative relation between idiosyncratic volatility and future stock returns. First, equity holders take on investments with high idiosyncratic risk when their firms are in distress and receive less...

Straddles on individual stocks generally earn significantly negative returns. However, average at the money straddles from three days before an earnings announcement to the announcement date yield a highly significant 3.34% return. The positive returns on straddles indicate that investors...

We study the liquidity exposures of value and growth stocks over business cycles. In worst times, value stocks have higher liquidity betas than in best times, while the opposite holds for growth stocks. Small value stocks have higher liquidity exposures than small growth stocks in worst times,...

We construct variance risk premiums for the nine major emerging markets of Brazil, China, India, South Korea, Mexico, Poland, Russia, South Africa, and Taiwan from 2000 to 2017 using the sample-extension methodology in Lynch and Wachter (2013). Both the emerging market and developed market...