Can asset pricing models price idiosyncratic risk in U.K. stock returns?

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Fletcher, Jonathan (2007) Can asset pricing models price idiosyncratic risk in U.K. stock returns? Financial Review, 42 (4). pp. 507-535. ISSN 0732-8516 (http://dx.doi.org/10.1111/j.1540-6288.2007.00181.x)

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Abstract

I examine how well different linear factor models and consumption-based asset pricing models price idiosyncratic risk in U.K. stock returns. Correctly pricing idiosyncratic risk is a significant challenge for many of the models I consider. For some consumption-based models, there is a clear tradeoff in the performance of the models between correctly pricing systematic risk and idiosyncratic risk. Linear factor models do a better job in most cases in pricing systematic risk than consumption-based models but the reverse is true for idiosyncratic risk.

ORCID iDs

Fletcher, Jonathan ORCID logoORCID: https://orcid.org/0000-0003-0568-9145;
CORE (COnnecting REpositories)