Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk

59 Pages Posted: 11 Jul 2000 Last revised: 17 Oct 2010

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Martin Lettau

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)

Yexiao Xu

University of Texas at Dallas - School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: March 2000

Abstract

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.

Suggested Citation

Campbell, John Y. and Lettau, Martin and Malkiel, Burton G. and Xu, Yexiao, Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk (March 2000). NBER Working Paper No. w7590. Available at SSRN: https://ssrn.com/abstract=227640

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

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Martin Lettau

University of California - Haas School of Business ( email )

Haas School of Business
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HOME PAGE: http://faculty.haas.berkeley.edu/lettau/

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Burton G. Malkiel

Princeton University - Bendheim Center for Finance ( email )

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Princeton, NJ 08540
United States
609-258-6445 (Phone)
609-258-0771 (Fax)

National Bureau of Economic Research (NBER)

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Yexiao Xu

University of Texas at Dallas - School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972-883-6703 (Phone)

HOME PAGE: http://www.utdallas.edu/~yexiaoxu

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