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Why Did Individual Stocks Become More Volatile?

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Author Info
Steven X. Wei (Hong Kong Polytechnic University)
Chu Zhang (Hong Kong University of Science and Technology)
Abstract

We investigate why individual stocks become more volatile over the 1976–2000 period, during which quarterly accounting data are available at the firm level. On average, corporate earnings have deteriorated and their volatilities have 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 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.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB790110
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 1 (January)
Pages: 259-292
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:1:p:259-292

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  1. Sónia Sousa & Ana Serra, 2008. "What drives idiosyncratic volatility over time?," Portuguese Economic Journal, Springer, vol. 7(3), pages 155-181, December. [Downloadable!] (restricted)
  2. Timotheos Angelidis & Nikolaos Tessaromatis, 2007. "Idiosyncratic Risk in Greece: Properties and Portfolio Implications," Working Papers 0001, University of Peloponnese, Department of Economics. [Downloadable!]
  3. Karolyi, G. Andrew & Lee, Kuan Hui & van Dijk, Mathijs A., 2007. "Common Patterns in Commonality in Returns, Liquidity, and Turnover around the World," Working Paper Series 2007-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  4. Hui Guo & Robert Savickas, 2005. "Idiosyncratic volatility, stock market volatility, and expected stock returns," Working Papers 2003-028, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  5. Colm Kearney & Valerio Poti, 2006. "Have European Stocks Become More Volatile? An Empirical Investigation of Idiosyncratic and Market Risk in the Euro Area," The Institute for International Integration Studies Discussion Paper Series iiisdp132, IIIS. [Downloadable!]
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  6. Joseph Ooi & Jingliang Wang & James Webb, 2009. "Idiosyncratic Risk and REIT Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 38(4), pages 420-442, May. [Downloadable!] (restricted)
  7. Demir, Firat, 2008. "Financial Liberalization, Private Investment and Portfolio Choice: Financialization of Real Sectors in Emerging Markets," MPRA Paper 3835, University Library of Munich, Germany, revised 01 Apr 2008. [Downloadable!]
    Other versions:
  8. Che, Natasha Xingyuan, 2009. "The great dissolution: organization capital and diverging volatility puzzle," MPRA Paper 13701, University Library of Munich, Germany. [Downloadable!]
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