Year: 2006
Type: article
Abstract: The fact that stocks become more volatile on average is documented by Campbell et al (2001) and Morck et al (2000) for the U.S. since 1960s. In this paper, we investigate why individual stocks become more volatile. Our inquiry focuses on the 1976-2000 period during which quarterly accounting data are available at the firm level. We report that corporate earnings have deteriorated on average and their volatility has increased over the sample period. This is more evident for newly listed stocks than for existing stocks. The stock return volatility is negatively related to the return-on-equity (scaled earnings) and positively related to the volatility of the return-on-equity in cross-sections. The upward trend in average stock return volatility is fully accounted for by the downward trend in the return-on-equity and the upward trend in the volatility of the return-on-equity. Other variables that have cross-sectional explanatory power, such as firm equity size and firm age, do not contribute to the increase of stock return over time.
Source: The Journal of Business
DOI: 10.1086/497411
Authors: Steven X. Wei, Chu Zhang
Institution: Hong Kong University of Science and Technology
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1970834139