Stock Return Volatility Before and after Regulation Fd

45 Pages Posted: 3 Dec 2001

See all articles by Frank Heflin

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting

Yuan Zhang

University of Texas at Dallas

Date Written: Undated

Abstract

We examine the effect of Regulation FD on stock return volatility. Critics suggest FD has increased volatility by causing firms to (a) disclose less information, resulting in increased noise trading and pricing errors; or (b) substitute essentially continuous communication to the market through professional analysts with infrequent public announcements, precipitating large price swings. While we find generally higher volatility in the fourth quarter of 2000 (after FD's implementation) than in the fourth quarter of 1999 (before FD's implementation), additional analyses suggest Regulation FD is unlikely the cause. Specifically, we find an increase in neither the proportion of extreme return days nor in negative serial correlation in returns post-FD. We find increased volatility around earnings pre-announcements, but we find an approximately offsetting decrease in volatility around announcements of actual earnings, such that we find no significant increase in volatility attributable to all earnings information release days.

Keywords: Regulation, Volatility, Disclosure

JEL Classification: K22, G14, G12, G29, M41, M45

Suggested Citation

Heflin, Frank and Subramanyam, K.R. and Zhang, Yuan, Stock Return Volatility Before and after Regulation Fd (Undated). Available at SSRN: https://ssrn.com/abstract=292879 or http://dx.doi.org/10.2139/ssrn.292879

Frank Heflin (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

K.R. Subramanyam

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)

Yuan Zhang

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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