Does Idiosyncratic Risk Really Matter? |
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| Authors: | TURAN G BALI NUSRET CAKICI XUEMIN YAN ZHE ZHANG |
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| Institution: | TURAN G. BALI,NUSRET CAKICI,XUEMIN (STERLING) YAN, ZHE ZHANG* |
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| 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. |
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