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Why are U.S. Stocks More Volatile?

Charles A. Dice Center Working Paper No. 2011-6

Fisher College of Business Working Paper No. 2011-03-006

49 Pages Posted: 27 Feb 2011  

Söhnke M. Bartram

Warwick Business School - Department of Finance

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 4 versions of this paper

Date Written: February 24, 2011

Abstract

From 1991 to 2006, U.S. stocks are more volatile than stocks of similar foreign firms. A firm’s stock return volatility in a country can be higher than the stock return volatility of a similar firm in another country for reasons that contribute positively (good volatility) or negatively (bad volatility) to shareholder wealth and economic growth. We find that the volatility of U.S. firms is higher mostly because of good volatility. Specifically, firm stock volatility is higher in the U.S. because it increases with investor protection, stock market development, research intensity at the country level, and firm-level investment in R&D. These are all factors that are related to better growth opportunities for firms and better ability to take advantage of these opportunities. Though it is often argued that better disclosure is associated with greater volatility as more information is impounded in stock prices, we find instead that greater disclosure is associated with lower stock volatility.

Keywords: Firm risk, Volatility, Idiosyncratic risk, R-squared

JEL Classification: G12, G15

Suggested Citation

Bartram, Söhnke M. and Brown, Gregory W. and Stulz, René M., Why are U.S. Stocks More Volatile? (February 24, 2011). Fisher College of Business Working Paper No. 2011-03-006. Available at SSRN: https://ssrn.com/abstract=1769207 or http://dx.doi.org/10.2139/ssrn.1769207

Söhnke Bartram

Warwick Business School - Department of Finance ( email )

Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)

HOME PAGE: http://go.warwick.ac.uk/sbartram/

Gregory Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Rene Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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