Resumen
This paper analyses the relationship between idiosyncratic risk and diversified portfolio returns on Brazil?s capital market. Following Goyal and Santa-Clara (2003) and Bali et alii (2005) we use volatility measures that capture systematic and idiosyncratic risk. For the identification of the relationship between idiosyncratic risk and portfolio returns we use a time series framework regressing volatility measures and portfolio returns one step ahead from 1999:01 to 2006:03. Additionally, we carry out robustness tests to validate our results. We found no evidence of a relationship between idiosyncratic risk and portfolio returns for the Brazilian capital market. Our evidence is similar to those from Bali et alii (2005) for the US capital market, which challenges the Goyal e Santa-Clara (2003) findings.