Is macroeconomic tail risk contagious to stock idiosyncratic risk?

We explore whether macroeconomic tail risk (MTR) is contagious at the individual stock level. We find that macroeconomic tail risk exacerbates stock idiosyncratic volatility. An increase in macroeconomic tail risk by one standard deviation is associated with an average increase in idiosyncratic volatility by 5.10%. Further, divergence of opinion intensifies the macro to stock idiosyncratic risk contagion. Results show that the positive impact of macroeconomic tail risk on idiosyncratic volatility is only observed in assets with positive MTR beta, indicating that risk-averse hedging trading behavior of investors during macroeconomic downturns is the potential reason for the macro-individual risk contagion.