2006/11/01 by José‐Miguel Gaspar, Massimo Massa · 3 citations
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Econometrics #Economics #Financial Markets and Investment Strategies #Financial economics #Implied volatility #Market Dynamics and Volatility #Market power #Microeconomics #Monetary economics #Product market #Stock (firearms) #Stock market #Systematic risk #Volatility (finance) #Volatility risk premium #Volatility smile #Volatility swap
paper · doi:10.1086/505251
openalex publication_date 2006/11/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/15
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.