Volatility amongst firms in the Dow Jones Eurostoxx50 Index

Abstract

This article presents a study of asset price volatility, correlation trends and market risk premia. Recent evidence shows an increase in firm-level volatility and a decline of the correlation among stock returns in the US (Campbell et al ., 2001). We find that, in relation to the Euro-area stock markets, both aggregate firm-level volatility and average stock market correlation are trended upwards. This article estimates the time series of market and idiosyncratic volatilities for the firms composing the index Dow Jones Eurostoxx50 for the 1992–2001 period following the volatility decomposition method of Campbell et al . (2001) Monthly time series of market and firm-level volatility are obtained using within monthly daily returns relative to the market return. This article also investigates the time series properties of the volatility series, in particular whether there are trends and whether there is a risk-return trade-off. The main findings are the following. There is a positive trend in both market and...