On the Volatility of Very Small Exchange-Traded Operating Companies

33 Pages Posted: 4 Oct 2014

Date Written: September 30, 2014


An empirical cross sectional study is presented showing a correlation between the annualized stock price volatility of very small exchange traded public operating companies and three categories of factors, which are (1) the volatility of the general market for the stock of small public companies, measured here by the volatility of the iShares Micro-Cap ETF (IWC), (2) the specific market for the stock, measured here by average daily trading volume and the fluctuation of average daily trading volume and (3) the characteristics of the individual company measured by six financial factors, which are (a) the fact of paying a dividend, (b) income margin and income return on equity measured here by operating income margin, (c) firm size measured by sales, (d) the current ratio, (e) equity/equity plus interest bearing debt, and (f) the sales/total assets ratio. Also some evidence is found that historical fluctuation of income and sales is related to volatility in subsequent periods. The study also shows that the average volatility for the companies in the study is significantly higher than that for the iShares Micro-Cap ETF, which is higher than that for the S&P 500. It also shows that the volatility varies from time to time and that subsequent period stock market volatility is correlated to previous period volatility but that the dispersion of the data is substantial.

Keywords: volatility, discounts for lack of marketability, stock options

JEL Classification: G12, G30, M49

Suggested Citation

Stockdale, John, On the Volatility of Very Small Exchange-Traded Operating Companies (September 30, 2014). Available at SSRN: https://ssrn.com/abstract=2409130 or http://dx.doi.org/10.2139/ssrn.2409130

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