Does Idiosyncratic Risk Matter in the Brazilian Capital Market?

Fernando Caio Galdi () and José Roberto Securato ()
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Fernando Caio Galdi: Fucape Business School
José Roberto Securato: Departamento de Administração, FEA/USP

Brazilian Review of Finance, 2007, vol. 5, issue 1, 41-58

Abstract: This paper analyses the relationship between idiosyncratic risk and diversified portfolio returns on Brazil’s capital market. Following Goyal and Santa-Clara (2003) and Bali et alii (2005) we use volatility measures that capture systematic and idiosyncratic risk. For the identification of the relationship between idiosyncratic risk and portfolio returns we use a time series framework regressing volatility measures and portfolio returns one step ahead from 1999:01 to 2006:03. Additionally, we carry out robustness tests to validate our results. We found no evidence of a relationship between idiosyncratic risk and portfolio returns for the Brazilian capital market. Our evidence is similar to those from Bali et alii (2005) for the US capital market, which challenges the Goyal e Santa-Clara (2003) findings.

Keywords: Idiosyncratic risk; stock market volatility; portfolio returns (search for similar items in EconPapers)
JEL-codes: C13 G10 G11 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:5:y:2007:i:1:p:41-58

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