Idiosyncratic volatility and the pricing of poorly-diversified portfolios
نویسنده
چکیده
This article examines the role of idiosyncratic volatility in explaining the cross-sectional variation of sizeand value-sorted portfolio returns. We show that the premium for bearing idiosyncratic volatility varies inversely with the number of stocks included in the portfolios. This conclusion is robust within various multifactor models based on size, value, past performance, liquidity and total volatility and also holds within an ICAPM specification of the risk-return relationship. Our findings thus indicate that investors demand an additional return for bearing the idiosyncratic volatility of poorly-diversified portfolios. * Joëlle Miffre, EDHEC Business School, 393 Promenade des Anglais, 06202, Nice, France. Tel: +33 (0)4 93 18 32 55, E-mail: [email protected] ** Chris Brooks, ICMA Centre, University of Reading, Whiteknights, PO Box 242, Reading, RG6 6BA, UK, Tel: +44 (0)118 378 8239, Email: [email protected]. ac.uk *** Xiafei Li, Nottingham University Business School, University of Nottingham, Jubilee Campus, Nottingham, NG8 1BB, UK, Tel: +44 (0) 115 8466436, Email: Xiafei.Li@nottingham. ac.uk
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