文档介绍：THE JOURNAL OF FINANCE • VOL. LVI, NO. 1 • FEBRUARY 2001
Have Individual Stocks e More Volatile?
An Empirical Exploration of Idiosyncratic Risk
JOHN Y. CAMPBELL, MARTIN LETTAU, BURTON G. MALKIEL,
and YEXIAO XU*
ABSTRACT
This paper uses a disaggregated approach to study the volatility mon 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.
IT IS BY NOW MONPLACE OBSERVATION that the volatility of the aggregate
stock market is not constant, but changes over time. Economists have built
increasingly sophisticated statistical models to capture this time variation
in volatility. Simple filters such as the rolling standard deviation used by
Officer ~1973! have given way to parametric ARCH or stochastic-volatility
models. Partial surveys of the enormous literature on these models are given
by Bollerslev, Chou, and Kroner ~1992!, Hentschel ~1995!, Ghysels, Harvey,
and Renault ~1996!, and Campbell, Lo, and MacKinlay ~1997, Chapter 12!.
Aggregate volatility is, of course, important in almost any theory of risk
and return, and it is the volatility experienced by holders of aggregate index
funds. But the aggregate market return is only ponent of the return
to an individual stock. Industry-level and idiosyncratic firm-level shocks are
also ponents of individual stock returns. There are several
reasons to be interested in the volatilities of ponents.
* John Y. Campbell is at Harv