Skip to main content

Strategic risk shifting and idiosyncratic volatility

A recent research paper, “Strategic risk shifting and idiosyncratic volatility”, by Dr Nicholas Chen with his co-authors, has been accepted for presentation at the 2015 Western Finance Association Meetings. The conference is highly prestigious with an acceptance rate from submitted papers of only 8%.

Nicholas’s work helps advance our understanding of asset pricing and capital markets. More specifically, while standard asset pricing models argue that idiosyncratic risk should not be priced, the new research theoretically and empirically demonstrates that when stock holders can manipulate a firm’s idiosyncratic risk profile to maximise their own wealth at the cost of bond holders, idiosyncratic risk will be priced in stock returns. They show that this unequal risk-sharing between equity and debt holders can explain a very important puzzle in the asset pricing literature, namely the negative relationship between idiosyncratic risk and future stock returns. Nicholas’s research will help advance our understanding on this well-known asset pricing puzzle. The full working paper is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417965 .

Published 6 March 2015
Topics:
Research news

You might also like

Rebuilding society post-recession

26 September 2011
What next? Financial crises

ICMA Centre announces accreditation programme by the Professional Risk Managers' International Association for MSc Financial Risk Management

19 May 2008
The ICMA Centre's MSc in Financial Risk Management has been accredited by the Professional Risk Managers' International Association (PRMIA).

Champagne and Celebration at the ICMA Centre

1 July 2010
Champagne and smiles were certainly not in short supply at the ICMA Centre this week when over 200 students celebrated their achievements at a reception held at the Centre prior to the Graduation Ceremony in the Great Hall.