Idiosyncratic Volatility of Small Public Firms and Entrepreneurial Risk

What Drove the Increase in Idiosyncratic Volatility during the Internet Boom?

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109010000487 ◽

2010 ◽

Vol 45 (5) ◽

pp. 1253-1278 ◽

Cited By ~ 77

Author(s):

Jason Fink ◽

Kristin E. Fink ◽

Gustavo Grullon ◽

James P. Weston

Keyword(s):

Investor Sentiment ◽

Idiosyncratic Risk ◽

Idiosyncratic Volatility ◽

The Internet ◽

Present Evidence ◽

Public Firms ◽

Specific Risk ◽

Increasing Trend ◽

Public Firm ◽

Firm Maturity

AbstractAggregate idiosyncratic volatility spiked nearly fivefold during the Internet boom of the late 1990s, dwarfing in magnitude a moderately increasing trend. While some researchers argue that this rise in idiosyncratic risk was the result of changes in the characteristics of public firms, others argue that it was driven by the changing sentiment of irrational traders. We present evidence that the marketwide decline in maturity of the typical public firm can explain most of the increase in firm-specific risk during the Internet boom. Controlling for firm maturity, we find no evidence that investor sentiment drives idiosyncratic risk throughout the Internet boom.

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Pengaruh Umur CEO, Struktur Dewan Komisaris, Frekuensi Rapat Komite Audit, Konsentrasi Kepemilikan, dan Tenur Audit terhadap Volatilitas Idiosinkratik

Jurnal Akuntansi Bisnis ◽

10.24167/jab.v19i2.3679 ◽

2021 ◽

Vol 19 (2) ◽

pp. 114

Author(s):

Yenny Kumalasari ◽

Sansaloni Butar Butar

Keyword(s):

Stock Prices ◽

Sharp Increase ◽

Audit Committee ◽

Idiosyncratic Volatility ◽

Negative Effects ◽

Financial Reports ◽

Public Firms ◽

Positive Effects ◽

Test Of Hypothesis ◽

Ceo Age

Idiosyncratic volatility is a series of sharp increase or decreas in stock prices due to a company's fundamental. This study argues that transparent financial reports should reduce idiosyncratic volatility. Transparent financial reports are the function of CEO age, board of commissioner size, board of commissioner meetings frequency, Audit Committee meetings frequency, ownership concentration, and audit tenure. Therefore, this study examines the effect of these variables on idiosyncratic volatility. Samples were gathered from Indonesian public firms for the periode of 2014-2018. Using regression analysis for the test of hypothesis, results show that while board of commissioner meetings frequency and audit tenure have negative effects on idiosyncratic volatility, the size of the board of commissioners, concentration of ownership have positive effects on idiosyncratic volatility. On the contrary, CEO age and audit committee meetings frequency have no effects on idiosyncratic volatility.

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Idiosyncratic Volatility of Small Public Firms and Entrepreneurial Risk

Quarterly Journal of Finance ◽

10.1142/s2010139216500026 ◽

2016 ◽

Vol 06 (01) ◽

pp. 1650002 ◽

Cited By ~ 4

Author(s):

David P. Brown ◽

Miguel A. Ferreira

Keyword(s):

Stock Returns ◽

Small Firms ◽

Idiosyncratic Risk ◽

Business Owners ◽

Idiosyncratic Volatility ◽

Expected Returns ◽

Liquidity Premium ◽

Public Firms ◽

Increasing Functions ◽

Rule Out

The average idiosyncratic volatility of small public firms is a positive predictor of future stock returns. This is true for returns of both large and small firms. We consider several economic arguments for this result, including a liquidity premium, and we rule out all but one of them. Our evidence supports the entrepreneurial risk hypothesis, which states that small firms’ idiosyncratic risk is a proxy for risk faced by private business owners, who also happen to be significant shareholders of stock. Expected returns are increasing functions of entrepreneurial risk, and therefore returns are predictable using proxies for this risk, which include small-firm idiosyncratic volatility.

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