Management Forecasts of Volatility

Review of Accounting Studies, Forthcoming

50 Pages Posted: 9 Dec 2019 Last revised: 19 Nov 2020

See all articles by Atif Ellahie

Atif Ellahie

University of Utah - David Eccles School of Business

Xiaoxia Peng

University of Utah - David Eccles School of Business

Date Written: April 1, 2020

Abstract

We examine the predictive information content of the management forecasts of stock return volatility (i.e., expected volatility) that are disclosed in annual reports. We find that expected volatility predicts near-term and longer-term stock return volatility and earnings volatility incremental to implied volatility, historical volatility, firm characteristics, and alternative measures of uncertainty. We also find that expected volatility reflects managers’ private information about their firms’ future investment activities, such as mergers and acquisitions and R&D intensity. Finally, we find that the predictive power of expected volatility shrinks when managers have stronger incentives to manage earnings. Overall, we provide novel evidence that management forecasts of volatility contain private information about future uncertainty that can help forecast volatility.

Keywords: volatility forecasting, expected volatility, disclosure, management forecasts

JEL Classification: M41, G13, G14

Suggested Citation

Ellahie, Atif and Peng, Xiaoxia, Management Forecasts of Volatility (April 1, 2020). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3497849 or http://dx.doi.org/10.2139/ssrn.3497849

Atif Ellahie (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Xiaoxia Peng

University of Utah - David Eccles School of Business ( email )

1655 E Campus Center Dr
Salt Lake City, UT 84112
United States

HOME PAGE: http://www.xiaoxiapeng.com

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