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Does Idiosyncratic Risk Really Matter?

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  • TURAN G. BALI
  • NUSRET CAKICI
  • XUEMIN (STERLING) YAN
  • ZHE ZHANG

Abstract

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. Copyright 2005 by The American Finance Association.

Suggested Citation

  • Turan G. Bali & Nusret Cakici & Xuemin (Sterling) Yan & Zhe Zhang, 2005. "Does Idiosyncratic Risk Really Matter?," Journal of Finance, American Finance Association, vol. 60(2), pages 905-929, April.
  • Handle: RePEc:bla:jfinan:v:60:y:2005:i:2:p:905-929
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