Abstract

http://ssrn.com/abstract=1297725
 


 



Relative Valuation, Differential Information, and Cross-Sectional Differences in Stock Return Volatility


Eberhart Allan


affiliation not provided to SSRN

Aswath Damodaran


New York University - Stern School of Business

January 1997

NYU Working Paper No. FIN-96-023

Abstract:     
Many studies argue that differences in information across securities explain much of the cross-sectional variation in stock return volatility. We offer an explanation beyond that previously identified in the literature by developing a proxy for differential information. Our proxy follows from our simple model development where the amount of information regarding a firm is positively related to how similar it is to its comparables (i.e., firms in the same industry). We call this measure of differential information the degree of comparability. In all our empirical tests, we consistently find a negative and highly significant relationship between volatility and the degree of comparability (after controlling for other factors the literature has found affect volatility). Moreover, in some tests, the degree of comparability is the most significant factor in explaining volatility.

Number of Pages in PDF File: 41

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Date posted: November 11, 2008  

Suggested Citation

Allan, Eberhart and Damodaran, Aswath, Relative Valuation, Differential Information, and Cross-Sectional Differences in Stock Return Volatility (January 1997). NYU Working Paper No. FIN-96-023. Available at SSRN: http://ssrn.com/abstract=1297725

Contact Information

Eberhart Allan (Contact Author)
affiliation not provided to SSRN
No Address Available
Aswath Damodaran
New York University - Stern School of Business ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0340 (Phone)
212-995-4233 (Fax)
HOME PAGE: http://www.damodaran.com
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