Standard asset pricing theories suggest that only systematic risk is priced. Empirical studies report a relationship between idiosyncratic volatility or risk (IVOL) and asset price. The most common explanation for this anomaly is that households under-diversify creating a Bad Model problem. This paper uses an Intermediary Asset Pricing Model (IAPM) as a way to control for under-diversification in evaluating the relationship between IVOL and asset price. We find that IVOL premia is lower in an IAPM. Our findings indicate that under-diversification can explain the anomaly partially.
| Identifer | oai:union.ndltd.org:uno.edu/oai:scholarworks.uno.edu:td-3844 |
| Date | 05 August 2019 |
| Creators | Ahmed, Hasib |
| Publisher | ScholarWorks@UNO |
| Source Sets | University of New Orleans |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | University of New Orleans Theses and Dissertations |
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