The conditional pricing of systematic and idiosyncratic risk in the UK equity market

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dc.contributor.authorCotter, John
dc.contributor.authorO'Sullivan, Niall
dc.contributor.authorRossi, Francesco
dc.contributor.funderScience Foundation Irelanden
dc.date.accessioned2014-11-27T17:31:08Z
dc.date.available2014-11-27T17:31:08Z
dc.date.issued2014-10
dc.date.updated2014-10-31T09:36:48Z
dc.description.abstractWe test whether firm idiosyncratic risk is priced in a large cross-section of U.K. stocks. A distinguishing feature of our paper is that our tests allow for a conditional relationship between systematic risk (beta) and returns, i.e., conditional on whether the excess market return is positive or negative. We find strong evidence in support of a conditional beta/return relationship which in turn reveals conditionality in the pricing of idiosyncratic risk. We find that idiosyncratic volatility is significantly negatively priced in stock returns in down-markets. Although perhaps initially counter-intuitive, we describe the theoretical support for such a finding in the literature. Our results also reveal some role for liquidity, size and momentum risk but not value risk in explaining the cross-section of returns.en
dc.description.sponsorshipScience Foundation Ireland (08/SRC/FM1389)en
dc.description.statusPeer revieweden
dc.description.versionSubmitted Versionen
dc.format.mimetypeapplication/pdfen
dc.identifier.citationCotter, J., O'Sullivan, N. & Rossi, F., The Conditional Pricing of Systematic and Idiosyncratic Risk in the UK Equity Market, International Review of Financial Analysis (2014), doi: 10.1016/j.irfa.2014.10.002 [In Press]en
dc.identifier.doi10.1016/j.irfa.2014.10.002
dc.identifier.issn1057-5219
dc.identifier.journaltitleInternational Review of Financial Analysisen
dc.identifier.urihttps://hdl.handle.net/10468/1722
dc.language.isoenen
dc.publisherElsevieren
dc.rights© 2014 Published by Elsevier Inc. NOTICE: this is the author’s version of a work that was accepted for publication in International Review of Financial Analysis. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Review of Financial Analysis [In Press] DOI: 10.1016/j.irfa.2014.10.002en
dc.subjectAsset pricingen
dc.subjectIdiosyncratic risken
dc.subjectTurnoveren
dc.subjectConditional betaen
dc.titleThe conditional pricing of systematic and idiosyncratic risk in the UK equity marketen
dc.typeArticle (peer-reviewed)en
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