Corporate Innovation And Idiosyncratic Volatility Anomalies

The relationship between the idiosyncratic volatility of stocks and their returns has always been a focus of widespread academic attention,but a consensus conclusion has not yet been formed,hence it is known as the "idiosyncratic volatility anomaly".Scholars have conducted research from multiple perspectives such as arbitrage restrictions,investor behavior,information disclosure quality of listed companies,and arbitrage asymmetry,but have not come to a consistent conclusion explaining the anomalies in idiosyncratic volatility.In domestic research,researchers mainly study the relationship between trait volatility and stock crosssectional returns.However,we found that from a temporal perspective,the relationship between trait volatility and expected stock returns is not stable.Enterprise innovation has had a broad impact on the capital market,affecting both investors and listed companies.There is still controversy in the academic community regarding the impact of corporate innovation on stock returns.A few scholars believe that innovation will reduce stock returns,but the vast majority of scholars believe that increasing corporate innovation can significantly improve stock returns,and believe that evaluating innovation can predict stock returns.However,due to the large amount of capital investment required for enterprise innovation,which is irreversible,highly uncertain,and has a long cycle,this will lead to significant fluctuations in the company’s operating performance and cash flow,which is manifested as an increase in stock idiosyncratic volatility.In addition,due to the limited disclosure of information related to corporate research and development activities by companies,the degree of information asymmetry between investors and managers has intensified,which may also lead to fluctuations in stock prices.Since corporate innovation can affect stock returns and risk levels by influencing investor behavior,is it possible to affect the relationship between idiosyncratic volatility and expected stock returns? If it can have an impact,what is the relevant path?This article mainly focuses on three issues: firstly,to investigate whether there are idiosyncratic volatility anomalies in the A-share market;Secondly,if there are indeed anomalies in idiosyncratic volatility,is it affected by the innovation investment of the enterprise;Finally,if corporate innovation can indeed affect the relationship between idiosyncratic volatility and expected stock returns,this article will further explore how it is achieved.To investigate whether there are anomalies in idiosyncratic volatility in the A-share market,this article adopts the Fama French three factor model and conducts empirical research using monthly daily data.The standard deviation of the residuals of the Fama French three factor model is used to represent the idiosyncratic volatility of individual stocks.Through methods such as univariate grouping,bivariate grouping,and Fama Mac Beth cross-sectional regression,this article found that within the entire sample interval,the stock idiosyncratic volatility of the A-share market exhibits a negative correlation with expected stock returns.In order to investigate whether corporate innovation can affect trait volatility anomalies,this article divides the sample into three sub samples based on the high,medium,and low level of corporate innovation,constructs an investment portfolio grouped by trait volatility,and conducts Fama Mac Beth cross-sectional regression within each sub sample.The empirical results show that there is a negative correlation between stock trait volatility and expected stock returns in investment portfolios with high innovation investment,but this negative correlation is no longer significant in investment portfolios with low and medium innovation investment.In order to study the transmission mechanism of the impact of corporate innovation on idiosyncratic volatility anomalies,this article divides A-share market stocks into lottery stocks and non lottery stocks.The difference in turnover rate,price,and price range of the two stocks is used as a variable to measure investors’ gambling preference.The higher the innovation of the current enterprise,the stronger the gambling preference of investors.This gambling preference is a transmission path of the impact of corporate innovation on idiosyncratic volatility anomalies.