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Media type:
E-Book
Title:
Pricing of Idiosyncratic Risk
:
A Rubric for Inference of Each of Revealed Preferences, and Preferences That Best Match Up to Native Return Distributions of Individual Stocks
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 17, 2022 erstellt
Description:
With formal theoretical conditions as premise, this study develops a formal empirical structure which facilitates, simultaneously inferences in respect of each of rationality and efficiency of pricing of idiosyncratic risk. Using exactly the same data, the new empirical structure revolves around juxtapositions of asset pricing rubrics that are revealed to have been adopted by investors, and asset pricing models shown to be most appropriate to pricing of individual stocks. Empirical tests show pricing of idiosyncratic risk of all three sample stocks satisfy the rationality conditions. Whereas, however, risk preference parameters of which native risk-return trade-offs for the three assets are representative deviate from global risk aversion, asymptotically, clienteles for all three sample stocks restrict themselves to be globally risk averse. It cannot be asserted, as such, that prices satisfy semi-strong form efficiency. Consistent with deviations from efficiency, realized prices are, for two out of three sample stocks, explicitly shown to embed arbitrage opportunities. Pricing of the third stock does not embed arbitrage opportunities, only because it's idiosyncratic risk asymptotically is negligible. Enumerated findings are robust to accounting for heterogeneity (dispersion) of investors' priors, and revolve around a newly motivated construct for heterogeneity of investors' risk preference parameters