here is the late ppt of my modern investment the description here is small unrecognizable risk discoveries of idiosyncratic risk
P.S another risk model
Call Girls Koregaon Park Call Me 7737669865 Budget Friendly No Advance Booking
Idiosyncratic risk matter chinbat
1. Th e j rnal of finance Vol LVIII,N o.3 JU N E 2003
ou
Idiosyncratic risk matter
AM IT G O YAL and P E D R O S AN TA-C LAR A
National Dong Hwa university
Presenter D.Chinbat
Prof. Wen shei li
FIN0840
2. C ontent
Abstract
Motivation
Introduction
Main results
Risk measure
Descriptive statistics
Predictive Regressions
Robustness check
Empirical result
Conclusion
3. Abstract
Th is p ap e r d oe s find a s ignificant p os itive re lation b e twe e n ave rage
s tock variance (large ly id ios yncratic) and th e re tu rn on th e m arke t.
In contras t, variance of th e m arke t h as no fore cas ting p owe r for th e
m arke t re tu rn.
Th e s e re lations p e rs is t afte r we control for m acroe conom ic variab le s
known to fore cas t th e s tock m arke t
M os t as s e t p ricing m od e ls s tarting with M e rton’s 1 973. C AP M
s u gge s t p os itive re lation b e twe e n ris k and re tu rn for aggre gate
s tock m arke t
Th e re lations h ip b e twe e n a ris k and re tu rn h as b e e n fou nd
ins ignificant, and s om e tim e s e ve n ne gative .
4. Innovation in th is p ap e r is look at ave rage s tock ris k in ad d ition to m arke t
ris k.
It m e as u re s ave rage s tock ris k in e ach m onth . U s ing a cros s -s e ctional
ave rage of th e variance of all th e s tocks trad e d th at m onth .
R u n p re d ictive re gre s s ions of m arke t re tu rn on th is variance m e as u re as
we ll as th e variance of m arke t
Th at m arke t variance h as no fore cas ting p owe r for th e m arke t re tu rn
5. Lite ratu re s tu d ying
In ve ry e arly work D ou glas 1 969 and Lintne r 1 965 find th at th e
variance of th e re s id u als from a m arke t m od e l is s trongly s ignificant
in e xp laining th e cros s -s e ction of ave rage s tock re tu rns , b u t M ille r
and S ch ole s 1 972 and F am a and M acb e th 1 973 p oint ou t s om e
s tatis tical p itfall in analys is
G re e n and R yd qvis t 1 997 p re s e nt an inte re s ting s tu d y of th e p ricing
of S we d is h lotte ry b ond s and find th at th e s e b ond s com m and a
p re m iu m for ris k th at is id ios yncratic b y cons tru ction.
O u r p ap e r is ab ou t th e tim e -s e rie s re lation b e twe e n ave rage s tock
ris k and th e s tock m arke t re tu rn. It is not C ros s -s e ction p ricing of
s tocks , alth ou gh th e two as p e cts are , of cou rs e , re late d .
6. M os t im p ortant p art of th is p ap e r work is th e re are two p rom ine nt
e xam p le s of non-trad e d as s e ts th at h ave b e e n wid e ly s tu d ie d in
lite ratu re : 1 H u m an cap ital and 2 P rivate b u s ine s s e s . F or b oth of th e s e
non-trad e d as s e ts it s e e m s re as onab le th at th e ir ris kine s s s h ou ld b e
re late d to th e total ris k of ave rage trad e d s tock.
re s u lts we h ave als o cons is te nt with th e m od e l of cons tantinid e s and
D u ffie 1 996 th e ir m od e l, inve s tor are s u b j ct to id ios yncratic incom e
e
s h ocks , and e q u ilib riu m ris k p re m iu m d e p e nd on th e cros s -s e ction
variance of cons u m p tion growth am ong inve s tors .
7. Motivation
To d o th is p ap e r inve s tigate is ab ou t id ios yncratic ou r analys is p roce e d s as
follows in ne xt s e ctions th e y are m e as u re s of m arke t ris k and ave rage s tock
ris k and p re s e nt th e m ain find ing ab ou t th e p re d ictive ab ility of ave rage
s tock ris k for s tock m arke t
In th is s e ction introd u ce ou r ris k m e as u re s and inve s tigate th e ir re lation to
th e m arke t re tu rn. Th e n th e variance of th e m arke t h as no fore cas ting p owe r
for th e m arke t re tu rn.
O nly find s ignificant p os itive re lation b e twe e n ave rage s tock variance and
th e re tu rn on th e m arke t
8. Introduction
Introd u ce th is ris k m e as u re and inve s tigate th e ir re lation to th e m arke t re tu rn
th at th e variance of th e m arke t h as no fore cas ting p owe r for th e m arke t
re tu rn. In contras t we find a s ignificant p os itive re lation b e twe e n ave rage
s tock variance and th e re tu rn on th e m arke t
9. Main result
R is k m e as u re
E ach m onth , com p u te th e m onth ly variance of p ortfolio p u s ing with in
m onth ly d aily re tu rn d ata as
D t is th e nu m b e r of d ays in m onth t and rp d is th e p ortfolios re tu rn on d ay
d th e s e cond te rm on th e righ t-h and s id e ad j s t for th e au tocorre lation in
u
d aily re tu rns u s ing th e ap p roach p rop os e d b y F re nch 1 975
10. C om p u te th e ave rage s tock variance as th e arith m e tic ave rage of th e m onth ly
variance of e ach s tocks re tu rns