Why is There a Secular Decline in Idiosyncratic Risk in the 2000s?

Söhnke Bartram, Gregory W. Brown and René Stulz
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Gregory W. Brown: University of North Carolina (UNC) at Chapel Hill - Finance Area

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Except for relatively short but intense episodes of high market risk, average idiosyncratic risk (IR) falls steadily after 2000 until almost the end of our sample period in 2017. The decrease has been such that from 2012 to 2017 average IR was lower than any time since 1965. The secular decline can be explained by the fact that U.S. publicly listed firms have become larger, older, and their stock more liquid. The same changes that bring about historically low IR lead to increasingly high market-model R-squareds.

JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2019-09
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2019-19

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