We show that the increase in firm-specific risk in the US stock market is the result of new listings by riskier companies. In addition, our results explain why prior researchers have found that growth opportunities, profit margin, firm size, and industry composition (among other factors) are related to increases in firm-specific risk. The new listing effect is not driven by small companies becoming riskier but instead by a riskier sub-sample of the economy becoming publicly traded. These results are consistent with prior research that documents time trends in financial market development.