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Idiosyncratic Risk and Earnings Noncommonality

Author

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  • Kenneth Yung
  • Qian Sun
  • Hamid Rahman

Abstract

The seminal Campbell et al. (2001) paper showing that idiosyncratic risk has increased considerably in recent years has spawned a large number of articles to explain the phenomenon. In this paper, we propose growing earnings noncommonality as a possible source of the increasing idiosyncratic volatility. The empirical results of this research validate this proposition. Our conclusions stand the test of several robustness checks which show that market power and innovativeness previously considered in literature as sources of increased idiosyncratic volatility are not significant in the presence of earnings noncommonality. The findings of this research will be useful for analysts and investors involved in asset pricing.

Suggested Citation

  • Kenneth Yung & Qian Sun & Hamid Rahman, 2015. "Idiosyncratic Risk and Earnings Noncommonality," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(1), pages 1-17.
    • Handle: RePEc:ibf:ijbfre:v:9:y:2015:i:1:p:1-17
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    More about this item

    Keywords

    Idiosyncratic Risk; Earnings Noncommonality;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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