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Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk*

* This paper has been replicated

Author

Listed:
  • John Y. Campbell
  • Martin Lettau
  • Burton G. Malkiel
  • Yexiao Xu

Abstract

This paper uses a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels. Over the period from 1962 to 1997 there has been a noticeable increase in firm‐level volatility relative to market volatility. Accordingly, correlations among individual stocks and the explanatory power of the market model for a typical stock have declined, whereas the number of stocks needed to achieve a given level of diversification has increased. All the volatility measures move together countercyclically and help to predict GDP growth. Market volatility tends to lead the other volatility series. Factors that may be responsible for these findings are suggested.

Suggested Citation

  • John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, February.
    • Handle: RePEc:bla:jfinan:v:56:y:2001:i:1:p:1-43
    DOI: 10.1111/0022-1082.00318
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    Replication

    This item has been replicated by:
  • Michael W. Brandt & Alon Brav & John R. Graham & Alok Kumar, 2010. "The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes?," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 863-899, February.

    • More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk (JF 2001) in ReplicationWiki

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