Idiosyncratic Volatility and Product Market Competition

José-Miguel Gaspar
Additional contact information
José-Miguel Gaspar: ESSEC Business School

Journal of Business, 2006, vol. 79, issue 6, pages 3125-3152

Abstract: We investigate the link between a firm's competitive environment and the idiosyncratic volatility of its stock returns. We find that firms enjoying high market power, or established in concentrated industries, have lower idiosyncratic volatility. We posit that competition affects volatility in two distinct ways. Market power works as a hedging instrument that smoothes out idiosyncratic fluctuations. Also, market power lowers information uncertainty for investors and therefore return volatility. We find strong support for both effects. Our results contribute to the understanding of recent trends of idiosyncratic volatility and confirm the link between stock performance and firm's competitive environment.

Date: 2006
View citations in EconPapers

Downloads: (external link)
http://www.journals.uchicago.edu/cgi-bin/resolve?JB790517 main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:6:p:3125-3152

Ordering information: This journal article can be ordered from
http://www.journals.uchicago.edu/JB/home.html

Access Statistics for this article

Journal of Business is edited by Albert Madansky

More articles in Journal of Business from University of Chicago Press
Address: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
Series data maintained by Christopher F. Baum ().