Risk is measured by the standard deviation of the firm's daily stock returns for each
fiscal year (STDEV). It is measured as the standard deviation of the rate of return on equity
for the company, and is expressed as a rate of return per month computed from the
(continuously compounded) equity rates of return for the company's equity.7 The standard
deviation is a measure of historical volatility, and is used by investors to gauge the amount
of expected volatility. This measure encompasses both systematic and unsystematic risk
(Carr, 1997), and has been used extensively. We control for industry risk by using ∂i net of
industry risk (INDADJSTD), which results in a measure closer to firm-specific risk.