Is idiosyncratic risk conditionally priced?

• 成果类型: Article
• 署名作者: Mehra, Rajnish; Wahal, Sunil; Xie, Daruo
• 署名单位: Arizona State University; Arizona State University-Tempe; National Bureau of Economic Research; Arizona State University; Arizona State University-Tempe; Australian National University
• 刊物名称: QUANTITATIVE ECONOMICS
• ISSN/ISSBN: 1759-7323
• DOI: 10.3982/QE1528
• 发表日期: 2021
• 页码: 625-646
• 关键词: Idiosyncratic risk; factor models; risk premium asset pricing; G11; G12

摘要

In Merton (1987), idiosyncratic risk is priced in equilibrium as a consequence of incomplete diversification. We modify his model to allow the degree of diversification to vary with average idiosyncratic volatility. This simple recognition results in a state-dependent idiosyncratic risk premium that is higher when average idiosyncratic volatility is low, and vice versa. The data appear to be consistent a positive state-dependent premium for idiosyncratic risk both in the US and other developed markets.