Isolating the systematic and unsystematic components of a single stock's (or portfolio's) standard deviation: a comment

Fabio Pizzutilo

Applied Economics, 2015, vol. 47, issue 58, 6277-6283

Abstract: In an article that recently appeared in this journal, Marshall (2015) argued that the systematic component of the SD of a stock or of a portfolio of stocks is its beta scaled by the SD of the market returns. She also contended that the beta mispredicts the actual systematic risk of a stock or of a portfolio of stocks. In this article, I dispute this conclusion, showing that it has been induced by an imperfection in the construction of the empirical application and by some misinterpretations of the results. A corrected replication of the empirical study of Marshall (2015) is provided, along with some comments. I conclude that both the beta and the systematic component in Marshall (2015) are effective measures of systematic risk.

Date: 2015
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DOI: 10.1080/00036846.2015.1068925

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