Isolating the Systematic and Unsystematic Components of a Single Stock's (or Portfolio's) Standard Deviation: A Comment

Posted: 18 Oct 2015

See all articles by Fabio Pizzutilo

Fabio Pizzutilo

Università degli Studi di Bari “Aldo Moro”

Date Written: July 24, 2015

Abstract

In an article that recently appeared in this journal, Marshall (2015) argued that the systematic component of the SD of a stock or of a portfolio of stocks is its beta scaled by the SD of the market returns. She also contended that the beta mispredicts the actual systematic risk of a stock or of a portfolio of stocks. In this article, I dispute this conclusion, showing that it has been induced by an imperfection in the construction of the empirical application and by some misinterpretations of the results. A corrected replication of the empirical study of Marshall (2015) is provided, along with some comments. I conclude that both the beta and the systematic component in Marshall (2015) are effective measures of systematic risk.

Keywords: systematic risk, unsystematic risk, capital asset pricing model, beta, conditional correlation, conditional covariance

JEL Classification: G10, G11, A20

Suggested Citation

Pizzutilo, Fabio, Isolating the Systematic and Unsystematic Components of a Single Stock's (or Portfolio's) Standard Deviation: A Comment (July 24, 2015). Applied Economics, Vol. 47, No. 58, 2015, DOI: org/10.1080/00036846.2015.1068925, Available at SSRN: https://ssrn.com/abstract=2675419

Fabio Pizzutilo (Contact Author)

Università degli Studi di Bari “Aldo Moro” ( email )

largo Abbazia S. Scolastica, 53
Bari, 70124
Italy

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