Advanced Search
MyIDEAS: Login

Idiosyncratic Volatility and Product Market Competition

Contents:

Author Info

  • Jos�-Miguel Gaspar

    (ESSEC Business School)

Registered author(s):

    Abstract

    We investigate the link between a firm's competitive environment and the idiosyncratic volatility of its stock returns. We find that firms enjoying high market power, or established in concentrated industries, have lower idiosyncratic volatility. We posit that competition affects volatility in two distinct ways. Market power works as a hedging instrument that smoothes out idiosyncratic fluctuations. Also, market power lowers information uncertainty for investors and therefore return volatility. We find strong support for both effects. Our results contribute to the understanding of recent trends of idiosyncratic volatility and confirm the link between stock performance and firm's competitive environment.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB790517
    File Function: main text
    Download Restriction: Access to the online full text or PDF requires a subscription.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 79 (2006)
    Issue (Month): 6 (November)
    Pages: 3125-3152

    as in new window
    Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:6:p:3125-3152

    Contact details of provider:
    Web page: http://www.journals.uchicago.edu/JB/

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Kang, Namho & Kondor, Péter & Sadka, Ronnie, 2011. "Idiosyncratic Return Volatility in the Cross-Section of Stocks," CEPR Discussion Papers 8307, C.E.P.R. Discussion Papers.
    2. Valta, Philip, 2012. "Competition and the cost of debt," Journal of Financial Economics, Elsevier, vol. 105(3), pages 661-682.
    3. Hyunbae Chun & Jung-Wook Kim & Randall Morck & Bernard Yeung, 2007. "Creative Destruction and Firm-Specific Performance Heterogeneity," NBER Working Papers 13011, National Bureau of Economic Research, Inc.
    4. Datta, Sudip & Iskandar-Datta, Mai & Sharma, Vivek, 2011. "Product market pricing power, industry concentration and analysts' earnings forecasts," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1352-1366, June.
    5. Desai, Chintal A. & Savickas, Robert, 2010. "On the causes of volatility effects of conglomerate breakups," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 554-571, September.
    6. Martijn Cremers & Hongjun Yan, 2009. "Uncertainty and Valuations," Yale School of Management Working Papers amz2383, Yale School of Management, revised 01 May 2009.
    7. Datta, Sudip & Iskandar-Datta, Mai & Singh, Vivek, 2014. "Opaque financial reports and R2: Revisited," Review of Financial Economics, Elsevier, vol. 23(1), pages 10-17.
    8. Bazdresch, Santiago, 2011. "Product differentiation and systematic risk: theory and empirical evidence," MPRA Paper 35504, University Library of Munich, Germany, revised 01 Nov 2011.
    9. Bayar, Onur & Chemmanur, Thomas J., 2012. "What drives the valuation premium in IPOs versus acquisitions? An empirical analysis," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 451-475.
    10. Chou, Ting-Kai & Ou, Chin-Shyh & Tsai, Shu-Huan, 2014. "Value of strategic alliances: Evidence from the bond market," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 42-59.
    11. Bryant, Lonnie L., 2012. "“Down but Not Out” mutual fund manager turnover within fund families," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 569-593.
    12. Brown, Gregory & Kapadia, Nishad, 2007. "Firm-specific risk and equity market development," Journal of Financial Economics, Elsevier, vol. 84(2), pages 358-388, May.
    13. Peress, Joel, 2010. "The tradeoff between risk sharing and information production in financial markets," Journal of Economic Theory, Elsevier, vol. 145(1), pages 124-155, January.
    14. Vivek Sharma, 2011. "Stock returns and product market competition: beyond industry concentration," Review of Quantitative Finance and Accounting, Springer, vol. 37(3), pages 283-299, October.
    15. Jubinski, Daniel & Tomljanovich, Marc, 2013. "Do FOMC minutes matter to markets? An intraday analysis of FOMC minutes releases on individual equity volatility and returns," Review of Financial Economics, Elsevier, vol. 22(3), pages 86-97.
    16. Bekaert, Geert & Hodrick, Robert J & Zhang, Xiaoyan, 2010. "Aggregate Idiosyncratic Volatility," CEPR Discussion Papers 8149, C.E.P.R. Discussion Papers.
    17. Datta, Sudip & Iskandar-Datta, Mai & Singh, Vivek, 2013. "Product market power, industry structure, and corporate earnings management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3273-3285.
    18. Sónia Sousa & Ana Serra, 2008. "What drives idiosyncratic volatility over time?," Portuguese Economic Journal, Springer, vol. 7(3), pages 155-181, December.
    19. Nguyen, Nhut H. & Truong, Cameron, 2013. "The information content of stock markets around the world: A cultural explanation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 1-29.
    20. Alimov, Azizjon, 2014. "Product market competition and the value of corporate cash: Evidence from trade liberalization," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 122-139.
    21. Omid Sabbaghi, 2011. "The behavior of green exchange-traded funds," Managerial Finance, Emerald Group Publishing, vol. 37(5), pages 426-441, May.
    22. Kale, Jayant R. & Loon, Yee Cheng, 2011. "Product market power and stock market liquidity," Journal of Financial Markets, Elsevier, vol. 14(2), pages 376-410, May.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ucp:jnlbus:v:79:y:2006:i:6:p:3125-3152. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.