Why does idiosyncratic risk increase with market risk?

Arbeitspapier

From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, the relation is strong for the most liquid stocks. The relation has roots in fundamentals as higher market risk predicts greater idiosyncratic earnings volatility and as firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. Consistent with the view that growth options provide a hedge against macroeconomic uncertainty, we find evidence that the relation is weaker for firms with more growth options.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CFS Working Paper Series ; No. 533

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates
• Thema: uncertainty ; idiosyncratic risk ; market risk ; growth options ; liquidity ; limits to arbitrage

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bartram, Söhnke M. ; Brown, Gregory W. ; Stulz, René M.
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (wo): Frankfurt a. M.
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/144821
• URN: urn:nbn:de:hebis:30:3-410505
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ