Expected Returns and Idiosyncratic Risk: Industry-level Evidence from Russia

Jyri Kinnunen, Minna Martikainen

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)

Abstract

We explore a relation between expected returns and idiosyncratic risk in Russia. Investors in the Russian stock market cannot fully diversify their portfolios due to transaction costs, information gathering and processing costs, and shortcomings in investor protection. This implies that investors demand a premium for idiosyncratic risk. We estimate the price of idiosyncratic risk using MIDAS regressions and a cross-section of Russian industry portfolios. We find that idiosyncratic risk is economically significant and commands a negative (positive) premium, on average, of 10.0 (8.0) percent per year before (after) the global financial crisis in 2008. The results remain unaffected after controlling for global pricing factors and return reversal.
Original languageEnglish
Peer-reviewed scientific journalEmerging Markets Finance and Trade
Volume53
Issue number11
Pages (from-to) 2528-2544
Number of pages17
ISSN1540-496X
DOIs
Publication statusPublished - 07.08.2017
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • cross-sectional returns
  • idiosyncratic risk
  • industry risk
  • MIDAS
  • Russia
  • 511 Economics

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