Does the business cycle explain changes and trends in idiosyncratic stock risk?
Open Access
Author:
Bruno, Jarrod Farrell
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
James Alan Miles, Thesis Honors Advisor Dr. Joseph Randall Woolridge, Thesis Supervisor
Keywords:
idiosyncratic risk business cycle S&P 500 firm-specific risk
Abstract:
Recent studies have focused on levels of idiosyncratic risk and the rising amount of volatility in stock returns. However, researchers have struggled to agree upon an explanation for this trend. In this thesis, numerous potential factors for changes in firm-specific risk and the overall level of idiosyncratic risk in financial markets is explored. I hope to show how the average level of idiosyncratic risk has changed in the last two decades and explain the factors that lead to these changes in idiosyncratic stock risk. Next, I hope to assess the relationship between idiosyncratic risk and numerous business cycle variables in an effort to prove that changes in the business cycle are causing idiosyncratic volatility to change over time.