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Pricing of Idiosyncratic Risk in an Intermediary Asset Pricing Model

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.

Identiferoai:union.ndltd.org:uno.edu/oai:scholarworks.uno.edu:td-3844
Date05 August 2019
CreatorsAhmed, Hasib
PublisherScholarWorks@UNO
Source SetsUniversity of New Orleans
Detected LanguageEnglish
Typetext
Formatapplication/pdf
SourceUniversity of New Orleans Theses and Dissertations

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