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Product market competition, idiosyncratic and systematic volatility

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  • Abdoh, Hussein
  • Varela, Oscar

Abstract

This study finds that competition increases idiosyncratic volatility relative to systematic volatility. Market power facilitates passing on firm specific cost shocks to customers but is irrelevant to passing on market cost shocks. A firm's competitive advantage in an industry is also more affected by changes in firm specific costs when there are many rivals. The results are robust to significant reductions in import tariff rates that reduce market power and consistent with lower pairwise returns' correlations following such events.

Suggested Citation

  • Abdoh, Hussein & Varela, Oscar, 2017. "Product market competition, idiosyncratic and systematic volatility," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 500-513.
    • Handle: RePEc:eee:corfin:v:43:y:2017:i:c:p:500-513
    DOI: 10.1016/j.jcorpfin.2017.02.009
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    More about this item

    Keywords

    Product market competition; Idiosyncratic volatility; Systematic volatility; Pairwise stock-returns' correlations;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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