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Is Idiosyncratic Risk Conditionally Priced? / Rajnish Mehra, Sunil Wahal, Daruo Xie.
- Format:
- Book
- Author/Creator:
- Mehra, Rajnish.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22016.
- NBER working paper series no. w22016
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- In Merton (1987), idiosyncratic risk is priced in equilibrium as a consequence of incomplete diversification. We modify his model to allow the degree of diversification to vary with average idiosyncratic volatility. This simple recognition results in a state-dependent idiosyncratic risk premium that is higher when average idiosyncratic volatility is low, and vice versa. The data appear to be consistent with a positive state-dependent premium for idiosyncratic risk both in the US and in other developed markets.
- Notes:
- Print version record
- February 2016.
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