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Asset pricing with idiosyncratic risk: The Spanish case

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  • Miralles-Marcelo, José Luis
  • Miralles-Quirós, María del Mar
  • Miralles-Quirós, José Luis
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    Abstract

    Idiosyncratic risk has been the subject of a great deal of international financial research. However, one question remains unsolved thus far: how to introduce it in asset pricing models. The aim of this paper is two-fold. Firstly, we propose and compare two alternative implications of idiosyncratic risk in asset pricing: (i) as a friction or (ii) as a source of another kind of systematic risk un-captured by beta coefficient. Secondly, we improve the international empirical evidence with an in-depth analysis of the Spanish stock market over the period 1987–2007. Our findings have important implications for portfolio and risk management.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 21 (2012)
    Issue (Month): 1 ()
    Pages: 261-271

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    Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:261-271

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Idiosyncratic risk; Diversification; Information costs; Equity risk premium;

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    References

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    Cited by:
    1. Faff, Robert & Gharghori, Philip & Nguyen, Annette, 2014. "Non-nested tests of a GDP-augmented Fama–French model versus a conditional Fama–French model in the Australian stock market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 627-638.
    2. Wang, Li-Hsun & Lin, Chu-Hsiung & Fung, Hung-Gay & Chen, Hsien-Ming, 2013. "An analysis of stock repurchase in Taiwan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 497-513.

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