Idiosyncratic risk matters! A regime switching approach |
| |
Authors: | Timotheos Angelidis Nikolaos Tessaromatis |
| |
Institution: | 1. The Ohio State University, Fisher College of Business, 2100 Neil Avenue, Columbus, OH 43210, USA;2. China Academy of Financial Research (CAFR), 211 West Huaihai Road, Shanghai 200030, PR China;3. Singapore Management University, Lee Kong Chian School of Business, 50 Stamford Road, Singapore 178899, Singapore\n |
| |
Abstract: | The evidence on the inter-temporal relation between idiosyncratic risk and future stock returns is conflicting and confusing. We shed new light on the issue using a more flexible econometric approach based on Hamilton, J.D. 1989. A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57, 357–384.] regime switching model that accommodates the parameter instability of the forecasting relation between returns and financial variables. We find strong evidence suggesting that idiosyncratic risk is related to future stock market returns only in the low variance regime. |
| |
Keywords: | |
本文献已被 ScienceDirect 等数据库收录! |
|