In this article, we find that the dynamics of local financial risks in the Chilean stock market are associated with the evolution of external economic conditions, with a strong reduction in both idiosyncratic and systematic risks during periods of stable conditions. Despite this, we fail to find any significant change in the traditional measures of stock price synchronicity developed in the R2 literature in our sample. We argue that these measures neglect the relationship between stock prices and fundamentals and find that the strength of the association between prices and fundamentals changes during our sample period, being much stronger during times of stable external conditions and diminished stock price volatility.
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Díaz et al. (2015) studied this question.
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