Asset pricing with idiosyncratic risk: The Spanish case

José Luis Miralles-Marcelo, María del Mar Miralles-Quirós and José Luis Miralles-Quirós
Authors registered in the RePEc Author Service: José Luis Miralles Quirós and Jose Luis Miralles Marcelo

International Review of Economics & Finance, 2012, vol. 21, issue 1, 261-271

Abstract: Idiosyncratic risk has been the subject of a great deal of international financial research. However, one question remains unsolved thus far: how to introduce it in asset pricing models. The aim of this paper is two-fold. Firstly, we propose and compare two alternative implications of idiosyncratic risk in asset pricing: (i) as a friction or (ii) as a source of another kind of systematic risk un-captured by beta coefficient. Secondly, we improve the international empirical evidence with an in-depth analysis of the Spanish stock market over the period 1987–2007. Our findings have important implications for portfolio and risk management.

Keywords: Idiosyncratic risk; Diversification; Information costs; Equity risk premium (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:21:y:2012:i:1:p:261-271

DOI: 10.1016/j.iref.2011.07.004

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