Date of Award

Summer 8-2019

Degree Type


Degree Name


Degree Program

Financial Economics


Economics and Finance

Major Professor

Neal Maroney

Second Advisor

M Kabir Hassan

Third Advisor

Duygu Zirek

Fourth Advisor

Atsuyuki Naka

Fifth Advisor

James Ronnie Davis


Standard asset pricing theories suggest that only systematic risk is priced. Empirical studies report a relationship between idiosyncratic volatility or risk (IVOL) and asset price. The most common explanation for this anomaly is that households under-diversify creating a Bad Model problem. This paper uses an Intermediary Asset Pricing Model (IAPM) as a way to control for under-diversification in evaluating the relationship between IVOL and asset price. We find that IVOL premia is lower in an IAPM. Our findings indicate that under-diversification can explain the anomaly partially.


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