From our hypothesis, the expected return of a zero investment portfolio that shorts stocks with low IDVOL betas and buys stocks with high ]DVOL betas should be negative.
Zero investment portfolios that long the highest 20% of IDVOL beta stocks and short lowest 20% of IDVOL beta stocks have abnormal returns of about -0.
Our general procedure is to sort stocks at the beginning of each month based on IDVOL betas estimated over the prior 36 months, and construct zero investment portfolios by shorting low IDVOL beta stocks and using the proceeds to purchase high IDVOL beta stocks.
t] to estimate Equation (12), we use two different weighting schemes when forming the zero investment portfolios, forming portfolios that are equal-weighted (EW) and value-weighted (VW), respectively.
More importantly, the alphas for the zero investment portfolios are all negative, ranging from -0.
When we construct our zero investment portfolios, the RIDVOL of the long and short sides of the portfolio will be equal and their dispersion in the zero investment portfolios will be neutralized.
We use the quintile portfolios and the two zero investment portfolios, [(H - L) and (H + 4) - (2 + L)/2], in these tests.
All eight of the zero investment portfolios are negative and significant, consistent with Ang et al.