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Management forecasts of volatility

Author

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  • Atif Ellahie

    (University of Utah)

  • Xiaoxia Peng

    (University of Utah)

Abstract

We examine the predictive information content of the management forecasts of stock return volatility (i.e., expected volatility) that are disclosed in annual reports. We find that expected volatility predicts near-term and longer-term stock return volatility and earnings volatility incremental to implied volatility, historical volatility, firm characteristics, and alternative measures of uncertainty. We also find that expected volatility reflects managers’ private information about their firms’ future investment activities, such as mergers and acquisitions and R&D intensity. Finally, we find that the predictive power of expected volatility shrinks when managers have stronger incentives to manage earnings. Overall, we provide novel evidence that management forecasts of volatility contain private information about future uncertainty that can help forecast volatility.

Suggested Citation

  • Atif Ellahie & Xiaoxia Peng, 2021. "Management forecasts of volatility," Review of Accounting Studies, Springer, vol. 26(2), pages 620-655, June.
    • Handle: RePEc:spr:reaccs:v:26:y:2021:i:2:d:10.1007_s11142-020-09567-4
    DOI: 10.1007/s11142-020-09567-4
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    References listed on IDEAS

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    Cited by:

    1. Atif Ellahie & Zachary Kaplan, 2021. "Show Me the Money! Dividend Policy in Countries with Weak Institutions," Journal of Accounting Research, Wiley Blackwell, vol. 59(2), pages 613-655, May.

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    More about this item

    Keywords

    Volatility forecasting; Expected volatility; Disclosure; Management forecasts;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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