R2, idiosyncratic volatility, and stock price crash risk: Where do we stand?

This paper reviews the rich literature on stock price synchronicity, idiosyncratic volatility, and stock price crash risk. To critically evaluate the findings of this literature, I focus on the most researched and debated issues. A large body of research suggests that more informative stock prices have lower synchronicity and higher idiosyncratic volatility. It is also well-established that crashes occur because managers hide negative firm-specific information from the public. Nonetheless, I identify conflicting hypotheses and results that remain unresolved. To this end, I suggest possible explanations for these controversies and outline avenues for future research.