Idiosyncratic Volatility and Product Market Competition
AbstractWe 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 InfoIf 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.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006)
Issue (Month): 6 (November)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JB/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- 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.
- Bekaert, Geert & Hodrick, Robert J & Zhang, Xiaoyan, 2010.
"Aggregate Idiosyncratic Volatility,"
CEPR Discussion Papers
8149, C.E.P.R. Discussion Papers.
- Sónia Sousa & Ana Serra, 2008. "What drives idiosyncratic volatility over time?," Portuguese Economic Journal, Springer, vol. 7(3), pages 155-181, December.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.