TY - JOUR
T1 - Idiosyncratic volatility and the pricing of poorly-diversified portfolios
AU - Miffre, Joëlle
AU - Brooks, Chris
AU - Li, Xiafei
PY - 2013/12/1
Y1 - 2013/12/1
N2 - This article examines the role of idiosyncratic volatility in explaining the cross-sectional variation of size- and 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.
AB - This article examines the role of idiosyncratic volatility in explaining the cross-sectional variation of size- and 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.
U2 - 10.1016/j.irfa.2013.05.007
DO - 10.1016/j.irfa.2013.05.007
M3 - Article (Academic Journal)
SN - 1057-5219
VL - 30
SP - 78
EP - 85
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
ER -