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Innovation and Idiosyncratic Risk: an Industry & Firm Level Analysis

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  • Mariana Mazzucato

    (Department of Economics, Faculty of Social Sciences, The Open University)

  • Massimiliano Tancioni

Abstract

Recent studies find that idiosyncratic risk (IR) has increased since the 1960's and attribute this to economy wide factors such as the role of the IT revolution. To gain further insights into why IR has increased over time, our paper uses industry level data and firm level data to study if industries considered "very innovative" and R&D intensive firms are characterized by higher IR due to how innovation activity affects the uncertainty of expected future profits. While the industry level results prove inconclusive, the firm level results are encouraging: a clear relationship is found between a firm's R&D intensity and the volatility of its returns.

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Bibliographic Info

Paper provided by The Open University, Faculty of Social Sciences, Department of Economics in its series Open Discussion Papers in Economics with number 50.

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Length: 46 pages
Date of creation: Nov 2005
Date of revision:
Publication status: Published in Computing in Economics and Finance 2005 81, Society for Computational Economics
Handle: RePEc:opn:wpaper:50

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Keywords: Idiosyncratic Risk; Volatility; Technological Change; Industry Life Cycle;

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