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

John Campbell, Martin Lettau, Burton G. Malkiel and Yexiao Xu

No 7590, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E32 G10 (search for similar items in EconPapers)
Date: 2000-03
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: AP EFG
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Citations: View citations in EconPapers (138)

Published as Campbell, John Y., Martin Lettau, Burton G. Malkiel and Yexiao Xu. "Have Individual Stocks Become More Volatile? An Empirical Exploration Of Idiosyncratic Risk," Journal of Finance, 2001, v56(1,Feb), 1-43.

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Journal Article: Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk (2001)
Working Paper: Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk (2001)
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