Why are U.S. Stocks More Volatile?
Söhnke M. Bartram
Warwick Business School - Department of Finance; New York University (NYU) - 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)
July 5, 2011
Journal of Finance, Vol. 67, No. 4, 2012, pp. 1329-1370
U.S. stocks are more volatile than stocks of similar foreign firms. A firm’s stock return volatility can be higher 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, new patents, 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.
Number of Pages in PDF File: 50
Keywords: Firm risk, volatility, idiosyncratic risk, R-squared
JEL Classification: G12, G15
Date posted: May 2, 2013