Why is idiosyncratic stock market volatility so low?

We find that the historically low IR [idiosyncratic risk] can be explained by the changes in firm characteristics that take place since the 1990s.

…the number of listed firms has fallen dramatically and the composition of listed firms has changed considerably, with public firms becoming larger and older.  We show that there is a stable relation between firm-level idiosyncratic risk and firm characteristics…we find no evidence that IR increases with institutional ownership…

That is from Bartram, Brown, and Stulz, in the NBER working paper series.


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