Time-Varying Risk and the Relation between Idiosyncratic Risk and Stock Return

This paper studies the historical time-varying dynamics of risk for individual stocks in U.S. market. Total an stock is decomposed into two components, systematic and idiosyncratic risk, both components are studied separately. We start from trend magnitude then turn to relation between returns. The result shows that changing over time. They increased 1960s 1990s/2000s declined until today. also risk-return tradeoff by investigating return long run. Stocks sorted portfolios analysis whole sample period further decades subgroup analysis. Multivariable regressions used study this as we control beta, size, book-to-market ratio, momentum liquidity. From a point view, show time-varying, it did not exist certain decades. results indicate varied history.