Idiosyncratic Risk Matters ! ∗

@inproceedings{Goyal2001IdiosyncraticRM,
  title={Idiosyncratic Risk Matters ! ∗},
  author={Amit Goyal and Pedro Santa-Clara},
  year={2001}
}
This paper takes a new look at the tradeoff between risk and return in the stock market. We find a significant positive relation between average stock variance and the return on the market. There is, therefore, a tradeoff between risk and return in the stock market, except that risk is measured as total risk, including idiosyncratic risk, rather than only systematic risk. Further, we find that the variance of the market by itself has no forecasting power for the market return. These relations… CONTINUE READING
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