Idiosyncratic Jump Risk Matters: Evidence from Equity Returns and Options

• 成果类型: Article
• 署名作者: Begin, Jean-Francois; Dorion, Christian; Gauthier, Genevieve
• 署名单位: Simon Fraser University; Universite de Montreal; HEC Montreal
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz043
• 发表日期: 2020
• 页码: 155
• 关键词: cross-section; stochastic volatility; stock returns; Market equilibrium; PREMIUMS EVIDENCE; GARCH MODEL; valuation; skewness; arbitrage; prices

摘要

The recent literature provides conflicting empirical evidence about the pricing of idiosyncratic risk. This paper sheds new light on the matter by exploiting the richness of option data. First, we find that idiosyncratic risk explains 28% of the variation in the risk premium on a stock. Second, we show that the contribution of idiosyncratic risk to the equity premium arises exclusively from jump risk. Third, we document that the commonality in idiosyncratic tail risk is much stronger than that in total idiosyncratic risk documented in the literature. Tail risk thus plays a central role in the pricing of idiosyncratic risk.