Does Idiosyncratic Risk Really Matter?
Article first published online: 2 MAR 2005
The Journal of Finance
Volume 60, Issue 2, pages 905–929, April 2005
How to Cite
BALI, T. G., CAKICI, N., YAN, X. and ZHANG, Z. (2005), Does Idiosyncratic Risk Really Matter?. The Journal of Finance, 60: 905–929. doi: 10.1111/j.1540-6261.2005.00750.x
- Issue published online: 2 MAR 2005
- Article first published online: 2 MAR 2005
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.