Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk
John Y. Campbell
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Burton G. Malkiel
Princeton University - Bendheim Center for Finance; National Bureau of Economic Research (NBER)
University of Texas at Dallas - School of Management
This paper uses a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels. Over the period 1962-97 there has been a noticeable increase in firm-level volatility relative to market volatility. Accordingly, correlations among individual stocks and the explanatory power of the market model for a typical stock have declined, while the number of stocks needed to achieve a given level of diversification has increased. All the volatility measures move together countercyclically and help to predict GDP growth. Market volatility tends to lead the other volatility series. Factors that may be responsible for these findings are suggested.
Number of Pages in PDF File: 59
JEL Classification: E32, G10working papers series
Date posted: February 25, 2000
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