Analysis the effect of market anomalies and growth options on stock return

Abstract In financial markets, the effect of profitability anomaly, distress anomaly, lotterynees anomaly and idiosyncratic volatility have been investigated individually. However, the potential relationship among these anomalies have not been analyzed yet. Recently it has been raised that growth options effect on the symmetry of the return distribution function and it can describe the potential relationship among anomalies and risk premium of anomalies. This relationship has been investigated in this research by use of the statistical properties governing over third order moments of return distribution function and isolating expected idiosyncratic skewness derived from growth options. For this purpose, data of 114 companies listed in Tehran Stock Exchange were collected during 2011 to 2016. Hypotheses were tested using portfolio approach and alpha evaluation of factor models. The findings shows that there is relationship between profitability, distress, lotteryness, idiosyncratic volatility and stock return, but the common capital asset pricing models cannot explain premium risk of these anomalies. These findings confirm profitability, lotteryness, distress and idiosyncratic volatility puzzle indirectly in the capital market of Iran and show that investors can earn extra return by using these anomalies. IntroductionThere is evidence that various factors such as profitability, distress, lotteryness, idiosyncratic volatility are related to stock returns. There is an extensive literature on these anomalies studied as separate phenomena: the profitability anomaly (e.g., Haugen and Baker (1996), Fama and French (2006, 2015), Novy-Marx (2013), Hou, Xue, & Zhang (2015)), the distress risk puzzle (Dichev (1998), Campbell, Hilscher, and Szilagyi (2008), ), Salim, Shahriari and Fadaei Nejad (2015)), demand for lottery-like stocks (Kumar (2009), Bali, Cakici, and Whitelaw (2011)), the idiosyncratic volatility effect (Ang, Hodrick, Yuhang, and Zhang (2006)), growth options (Cao, Simin, and Zhao (2008), Trigeorgis and Lambertides (2014), Badri, Arab Mazar and Davaloo (2015)), and the skewness effect (Harvey and Siddique (2000), Boyer, Mitton, and Vorkink (2010)).Although the literature on the above anomalies is rich and extensive in its own right, the inter-linkage between idiosyncratic skewness linked to growth options and their asymmetric impact on returns via idiosyncratic skewness, and the profitability, distress, lotteryness, and idiosyncratic volatility phenomen