Risk Measurement for Event-Dependent Security Returns

Financial economists often test security pricing models for the destabilizing effects of informational uncertainty. In particular, Bar-Yosef and Brown (1977) examined the market model and concluded that systematic risk is concave during stock-split event periods. Unsystematic risk, however, was assumed constant. Further steps are taken in this article. A generalization of the random coefficients model of Hildreth and Houck (1968) is conducted, and case-by-case testing for event-period concavity of both systematic and unsystematic risk is conducted. In contrast to past findings, the results support concavity for unsystematic risk, not systematic risk.

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