Traditional CAPM model debunked: High idiosyncratic risk undermines portfolio diversification.
The study looked at how risk affects returns in the UK stock market. They found that the traditional way of predicting returns based on risk doesn't always work because of other factors like idiosyncratic risk. When they included more variables in their analysis, they found that the relationship between risk and return is more complex than previously thought. This means that the usual method of diversifying investments may not always work as expected.