What drives idiosyncratic volatility over time?

Sousa, Sónia R.; Serra, Ana Paula

http://hdl.handle.net/10400.5/15579

Use this identifier to reference this record.

Name:	Description:	Size:	Format:
pej_7_3_2008_1.pdf		452.56 KB	Adobe PDF	Download

Send Feedback

Authors

Sousa, Sónia R.

Serra, Ana Paula

Abstract(s)

We document the patterns of market-wide and firm-specific volatility in the Portuguese stock market over the 1991–2005 period and test several explanations for the behavior of firm-level idiosyncratic volatility. Unlike previous studies we find no evidence of a statistically significant rise in firm- specific volatility. On the contrary, the ratio of firm-specific risk to total risk slightly decreases. We show that this result stems from new listings of large privatized companies that display lower firm-specific risk. Our findings are consistent with the idea that changes in idiosyncratic volatility are related to changes in the composition of the market.