Why are U.S. Stocks More Volatile?
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)
February 24, 2011
Charles A. Dice Center Working Paper No. 2011-6
Fisher College of Business Working Paper No. 2011-03-006
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.
Number of Pages in PDF File: 49
Keywords: Firm risk, Volatility, Idiosyncratic risk, R-squared
JEL Classification: G12, G15
Date posted: February 27, 2011