idosyncratic risk affect on market risk

[AlexMo]

For a thinly traded stock, how could the idiosyncratic (diversifiable risk) overwhelm the market risk & thus making beta a poor predictor of future stock returns for company xyz?

 

[Harrogath]

That’s why the build-up method is used to calculate equity required return on those cases, it does not use beta.
Beta measures systematic risk (not total risk, which is systematic risk + idiosyncratic risk), so a bad calculated beta because not enough data (thin trade) will provide biased systematic risk measures. Therefore beta will mislead calculated required rates of return.