Idiosyncratic volatility and the pricing of poorly-diversified portfolios

Miffre, J., Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Li, X. (2013) Idiosyncratic volatility and the pricing of poorly-diversified portfolios. International Review of Financial Analysis, 30. pp. 78-85. ISSN 1057-5219 doi: 10.1016/j.irfa.2013.05.007

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/36098
Item Type	Article
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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