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

Abstract

This paper merges two independent projects, Campbell and Lettau (1999) and Malkiel and Zu (1999). Campbell and Lettau are grateful to Sangjoon Kim for his contributions to the first version of their paper, Campbell, Kim and Lettau (1994). We thank two anonymous referees and René Stulz for useful comments. Jung-Wook Kim and Matt Van Vlack provided able research assistance. The views are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York, the Federal Reserve System or the National Bureau of Economic Research. Any errors and omissions are the responsibility of the authors.

Innovation and idiosyncratic risk: an industry- and firm-level analysis

“…new GPTs). Furthermore, Campbell et al (2000), reviewed further below, relate the dynamics of "idiosyncratic risk" to general changes in the economy associated with the IT revolution.…”

“…The few that exist focus on the reallocation of resources across sectors. viii Motivated by this lacuna, Campbell et al (2000) conduct a rigorous empirical study of idiosyncratic risk on firm level and industry level data.…”

“…Unlike Campbell et al (2000) to measure idiosyncratic risk we do not decompose the return of a 'typical' stock into its three components above (which sum up to the total return volatility), rather we calculate the ratio between the variance of a firm's return and the variance of the return of the general market as a proxy for idiosyncratic risk and apply it to both firms and industries to capture the relative volatility (compared to the S&P500 index To calculate industry specific idiosyncratic risk, firm i in Eqs 1-2 is replaced with industry j.…”

Cardinality Constrained Portfolio Optimisation

“…The number of stocks needed to achieve a particular diversification gain depends on the correlation among stock returns; the lower the correlation, the more stocks are needed. Campbell et al [1] show that although overall market volatility has not increased in recent years, individual stock returns have become less correlated with each other. Consequently, more stocks are thought to be needed in a portfolio than in the period studied by [2] (1926-1965).…”

Modelo matemático baseado em lógica nebulosa para tratamento de variáveis e avaliação de contexto de sistemas dinâmicos.

“…A definição da função foi feita de forma empírica para demonstrar como a exposição à uma determinada condição ao longo do tempo pode influenciar na decisão final. vezes associando a volatilidade à fatores de risco (ARTZNER et al, 1999;BAKER;WURGLER, 2007;CAMPBELL et al, 2001;LI, 1998 …”