Article ID Journal Published Year Pages File Type
5086598 Journal of Accounting and Economics 2015 63 Pages PDF
Abstract
We extend a standard, rational expectation model of trade to incorporate the possibility of individual investors delegating their trades to an informed financial intermediary. In the presence of delegated trade, we show that a firm׳s risk premium is a function of both the firm׳s exposure to a common risk factor and idiosyncratic characteristics of the firm׳s information environment. We show that even in a large economy, priced risks can manifest in the form of both idiosyncratic firm characteristics and common risk factors; as a consequence, factor-based asset pricing tests cannot rule out that a particular risk is priced.
Related Topics
Social Sciences and Humanities Business, Management and Accounting Accounting
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