The paper shows that controlling for the aggregate volatility risk factor eliminates the puzzling negative relation between variability of trading activity and future abnormal returns. I also find that variability of other measures of liquidity and liquidity risk is largely unrelated to expected...

The paper shows that lottery-like stocks are hedges against unexpected increases in market volatility. The loading on the aggregate volatility risk factor explains low returns to stocks with high maximum returns in the past (Bali, Cakici, and Whitelaw, 2011) and high expected skewness (Boyer,...

The paper shows that the difference in aggregate volatility risk can explain why several anomalies are stronger among the stocks with low institutional ownership (IO). Institutions tend to stay away from the stocks with extremely low and extremely high levels of firm-specific uncertainty because...

The paper discovers that firm complexity is negatively priced in cross-section. High/low-complexity conglomerates have 35-50/20-28 bp per month more negative five-factor Fama and French (2015) alphas than single-segment firms, and this effect is stronger in subsamples with low institutional...

Firms with lower profitability have lower expected returns because such firms perform better than expected when market volatility increases. The better-than-expected performance arises because unprofitable firms are distressed and volatile, their equity resembles a call option on the assets, and...

The paper shows that distressed firms have positive abnormal returns when aggregate volatility unexpectedly increases. This hedging property of distressed firms explains the puzzling negative relation between firm-specific distress risk and future alphas from benchmark asset-pricing models....

We show that the post earnings announcement drift (PEAD) is stronger for conglomerates thansingle-segment firms. Conglomerates, on average, are larger than single segment firms, so it isunlikely that limits-to-arbitrage drive the difference in PEAD. Rather, we hypothesize that marketparticipants...

The paper explains why firms with high dispersion of analyst forecasts earn low future returns. These firms beat the CAPM in periods of increasing aggregate volatility and thereby provide a hedge against aggregate volatility risk. The aggregate volatility risk factor can explain the abnormal...

The paper shows that the value effect and the idiosyncratic volatility (IVol) discount (Ang et al., 2006) arise because growth firms and high IVol firms beat the CAPM during the periods of increasing aggregate volatility, which makes their risk low. All else equal, growth options' value...