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Paper:  "Volatile Firms, Stable Economy," by Hui Guo
National Economic Trends March 2004
http://research.stlouisfed.org/publications/net/20040301/cover.pdf

Summary by Tom Downing (3/2/4 8:47)

Idiosyncratic volatility:

There is also long term uptrend in sales and earnings growth variability.

BUT this is in sharp contrast with the well documented decline in the variability of the aggregate U.S. economy.

How to reconcile this?

Implications for economy:

E.g., bond market in the late 1990s, when yield spreads widened substantially, despite the fact that investors were quite optimistic about the overall performance of the U.S. economy. This episode is less puzzling, however, if we take into account the dramatic increase in idiosyncratic volatility during this period.