Arbeitspapier

Why Does Idiosyncratic Risk Increase with Market Risk?

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, it is strong for the most liquid stocks. The relation has roots in fundamentals. Higher market risk predicts greater idiosyncratic earnings volatility as well as dispersion and errors in analysts’ earnings forecasts. Firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. We find evidence that the relation is weaker for firms with more growth options, which is con-sistent with the view that such options provide a hedge against macroeconomic uncertainty.

Sprache
Englisch

Erschienen in
Series: CESifo Working Paper ; No. 6560

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

Ereignis
Geistige Schöpfung
(wer)
Bartram, Söhnke M.
Brown, Gregory
Stulz, René M.
Ereignis
Veröffentlichung
(wer)
Center for Economic Studies and ifo Institute (CESifo)
(wo)
Munich
(wann)
2017

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Bartram, Söhnke M.
  • Brown, Gregory
  • Stulz, René M.
  • Center for Economic Studies and ifo Institute (CESifo)

Entstanden

  • 2017

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