Intraday Volatility of Volatility as an Equity Ambiguity Factor

Summary

The document presents volatility of volatility (VoV) as a proxy for uncertainty about an asset’s probability distribution, distinct from ordinary risk. It argues that investors tend to avoid stocks with greater ambiguity and may favor stocks whose prospects prompt less disagreement. Because individual stock options data were unavailable, the study estimates VoV using five-minute prices: it derives intraday volatility and then measures how that volatility changes across days.

The reported tests show a negative relationship between VoV and future returns, both before and after removing industry and style effects. The document also gives factor performance statistics, reports limited overlap with conventional price and volume factors apart from residual volatility, and compares high- and low-VoV stock portfolios. High-VoV stocks underperformed, while a low-VoV selection within the ChiNext market showed stronger results, particularly after 2014. These are historical findings from the cited analysis, not evidence of out-of-sample persistence; the summary provides no full methodology, sample construction details, or transaction-cost analysis.

Key ideas

• VoV is framed as uncertainty about the probability distribution underlying an investment, rather than ordinary return risk.
• The proposed proxy uses five-minute prices to estimate intraday volatility, then tracks its variation across days.
• The reported relationship between VoV and future returns is negative, including after industry and style adjustment.
• High-VoV stocks performed poorly in the reported portfolio comparison, while low-VoV stocks within ChiNext performed better.
• The findings are historical and the document does not provide enough detail to assess trading costs or out-of-sample robustness.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.