TY  - UNPD
A1  - Bartram, Söhnke M.
A1  - Brown, Gregory
A1  - Stulz, René M.
T1  - Why does idiosyncratic risk increase with market risk?
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 533
N2  - From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the strength of the relation, the relation is strong for the most liquid stocks. The relation has roots in fundamentals as higher market risk predicts greater idiosyncratic earnings volatility and as firm characteristics related to the ability of firms to adjust to higher uncertainty help explain the strength of the relation. Consistent with the view that growth options provide a hedge against macroeconomic uncertainty, we find evidence that the relation is weaker for firms with more growth options.
T3  - CFS working paper series - 533 
KW  - uncertainty
KW  - idiosyncratic risk
KW  - market risk
KW  - growth options
KW  - liquidity
KW  - limits to arbitrage
Y1  - 2016
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/41050
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-410505
UR  - http://ssrn.com/abstract=2828666
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -