Firm-Specific Risk and Equity Market Development

Kapadia, Nishad; Brown, Gregory W.

doi:10.2139/ssrn.635441

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Firm-Specific Risk and Equity Market Development

Sixteenth Annual Utah Winter Finance Conference

50 Pages Posted: 28 Dec 2004

See all articles by Nishad Kapadia

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area

Date Written: January 2006

Abstract

We examine the increase in firm-specific risk in the U.S. stock market which has been documented by prior research. We show that the observed increase is due solely to new listings by riskier companies. In addition, our results explain why prior researchers have found that growth opportunities, profit margin, firm size, and industry composition (among other factors) are related to increases in firm-specific risk. The new listing effect is not driven by small companies becoming riskier but instead by a riskier sub-sample of the economy becoming publicly traded. These results are consistent with prior research that documents time trends in financial market development.

Keywords: Idiosyncratic Risk, Firm-specific Risk, Market Risk

JEL Classification: G11

Suggested Citation: Suggested Citation

Kapadia, Nishad and Brown, Gregory W., Firm-Specific Risk and Equity Market Development (January 2006). Sixteenth Annual Utah Winter Finance Conference, Available at SSRN: https://ssrn.com/abstract=635441 or http://dx.doi.org/10.2139/ssrn.635441