Idiosyncratic risk Pricing: Evidence from Tehran Stock Exchange

Abstract

The purpose of this research is the empirical test of idiosyncratic risk pricing in Tehran Stock Exchange during 1378 to 1389. The research is considered as “Ex-post facto” that has been done using “portfolio study approach” and is based on observational data. The statistical sample composed of 11880 firms/season observations from 270 listed companies in Tehran Stock Exchange. Results show that investors expect to compensate (obtain risk premium) for bearing idiosyncratic risk. The performance of momentum portfolios based on idiosyncratic risk always is positive and statistically significant. Furthermore, the robustness tests confirm that this positive performance is not influenced by weak trading effects, change in idiosyncratic volatility estimation method and weighting scheme of return computation

Keywords

• asset pricing
• idiosyncratic risk
• thin trading