64 Pages Posted: 14 Mar 2009 Last revised: 3 Sep 2015
Date Written: August 1, 2015
We investigate the volatility of firms’ assets in contrast to existing studies that focus on equity volatility. We estimate asset volatility using a comprehensive dataset on the market values of corporate security returns. We find significant differences between the properties of equity and asset volatilities with implications for several important areas of finance. First, financial leverage has a large influence on equity volatility. Second, leverage and asset volatility have permanent and transitory effects respectively on equity volatility, helping explain the short- and long-run dynamics of equity volatility. Third, we analyze and compare the cross section of asset versus equity returns.
Keywords: time-varying volatility, firm's assets, leverage, feedback effect
JEL Classification: C22, C53, G12
Suggested Citation: Suggested Citation
Choi, Jaewon and Richardson, Matthew P., The Volatility of a Firm's Assets and the Leverage Effect (August 1, 2015). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1359368 or http://dx.doi.org/10.2139/ssrn.1359368
By Jaewon Choi