DMCA
Idiosyncratic risk matters (2003)
| Venue: | Journal of Finance |
| Citations: | 107 - 6 self |
BibTeX
@ARTICLE{Goyal03idiosyncraticrisk,
author = {Amit Goyal and Pedro Santa-clara and Avanidhar Subrahmanyam and Walter Torous and Rossen Valkanov and Especially John Campbell and Richard Roll},
title = {Idiosyncratic risk matters},
journal = {Journal of Finance},
year = {2003},
pages = {975--1007}
}
Share
 |
 |
 |
 |
||
OpenURL
Abstract
This paper takes a new look at the tradeoff between risk and return in the stock market. We find a significant positive relation between average stock variance and the return on the market. There is, therefore, a tradeoff between risk and return in the stock market, except that risk is measured as total risk, including idiosyncratic risk, rather than only systematic risk. Further, we find that the variance of the market by itself has no forecasting power for the market return. These relations persist after we control for macroeconomic variables known to forecast the stock market. We show that idiosyncratic risk explains most of the variation of average stock risk through time and it is idiosyncratic risk that drives the forecastability of the stock market.
