Does Idiosyncratic Risk Really Matter?

• Main Authors: ZHANG, Zhe (Joe), Bali, Turan G., Cakici, Nusret, Yan, Xuemin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/1080; https://doi.org/10.1111/j.1540-6261.2005.00750.x
• Institution: Singapore Management University

Goyal and Santa-Clara (2003) find a significantly positive relation between the equal-weighted average stock volatility and the value-weighted portfolio returns on the NYSE/AMEX/Nasdaq stocks for the period of 1963:08 to 1999:12. We show that this result is driven by small stocks traded on the Nasdaq, and is in part due to a liquidity premium. In addition, their result does not hold for the extended sample of 1963:08 to 2001:12 and for the NYSE/AMEX and NYSE stocks. More importantly, we find no evidence of a significant link between the value-weighted portfolio returns and the median and value-weighted average stock volatility.