2026-05-21T05:08:56Zhttps://keep.lib.asu.edu/oai/requestoai:keep.lib.asu.edu:node-1534512024-12-20T18:25:12Zoai_pmh:alloai_pmh:repo_items153451
https://hdl.handle.net/2286/R.I.29715
http://rightsstatements.org/vocab/InC/1.0/
All Rights Reserved
2015
v, 59 p. : col. ill
Doctoral Dissertation
Academic theses
Text
eng
Xie, Daruo
Wahal, Sunil
Mehra, Rajnish
Arizona State University
Partial requirement for: Ph.D., Arizona State University, 2015
Includes bibliographical references (p. 47-48)
Field of study: Business administration
Merton (1987) predicts that idiosyncratic risk can be priced. I develop a simple equilibrium model of capital markets with information costs in which the idiosyncratic risk premium depends on the average level of idiosyncratic volatility. This dependence suggests that the idiosyncratic risk premium varies over time. I find that in U.S. markets, the covariance between stock-level idiosyncratic volatility and the idiosyncratic risk premium explains future stock returns. Stocks in the highest quintile of the covariance between the volatility and risk premium earn an average 3-factor alpha of 70 bps per month higher than those in the lowest quintile.
Finance
Financial risk
Capital market--Econometric models.
Capital market
Stocks--Prices.
A time-varying premium for idiosyncratic risk: its effects on the cross-section of stock returns