In:
Quantitative Economics, The Econometric Society, Vol. 12, No. 2 ( 2021), p. 625-646
Abstract:
In Merton (1987), idiosyncratic risk is priced in equilibrium as a consequence of incomplete diversification. We modify his model to allow the degree of diversification to vary with average idiosyncratic volatility. This simple recognition results in a state‐dependent idiosyncratic risk premium that is higher when average idiosyncratic volatility is low, and vice versa. The data appear to be consistent a positive state‐dependent premium for idiosyncratic risk both in the US and other developed markets.
Type of Medium:
Online Resource
ISSN:
1759-7323
Language:
English
Publisher:
The Econometric Society
Publication Date:
2021
detail.hit.zdb_id:
2530322-3
detail.hit.zdb_id:
2569569-1
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