Idiosyncratic volatility and stock price crash risk: Evidence from china

• DOI: 10.1016/j.frl.2021.102095
• Publication Date: 2021-04-29T07:31:39Z
• Authors: Jiahui Cao; Fenghua Wen; Yue Zhang; Zhujia Yin; Yun Zhang
• Keywords: Stock (firearms); Systematic risk; Stock market crash

Abstract This paper investigates the relationship between idiosyncratic volatility and the risk of a stock price crash in China. Using a large sample of Chinese listed firms from 2007 to 2018, the evidence shows that stock price crash risk is significantly positively associated with idiosyncratic volatility. Moreover, firms with a higher level of idiosyncratic volatility are more likely to experience a crash in stock price. The results are robust to alternative measures of idiosyncratic volatility and stock price crash risk and the findings advance our understanding about the role of short-selling constraints in managing the risk of a stock price crash.