How to Lower the Volatility in the Stock Market? More Reading Less Trading
6 Pages Posted: 18 Nov 2019 Last revised: 29 Jan 2021
Date Written: November 7, 2019
This paper presents steps to lower the overall volatility in the stock market; as a large portion is unrewarded and unjustified and driven by overreaction accompanies with herd behavior. We first map the key factors that cause volatility, such as: earnings surprise, CEO turnovers, merge and acquisitions, etc. and then present our suggestions; where the key elements are: (i) fewer day/hours of trading, which in turn increases time to processing information; (ii) limit the short selling; and (iii) semi-annual earnings reports instead of quarterly; smoothing the surprises. Following these suggestions, the volatility decreases by at least 15.5% per day. Collectively, we suggest to trade less and read more.
Keywords: stock market volatility, underreaction, overreaction, herd behavior; Warren Buffet
JEL Classification: G12, G10
Suggested Citation: Suggested Citation