Total Factor Productivity and Idiosyncratic Volatility Trends

34 Pages Posted: 16 Jul 2020

See all articles by Hussein Abdoh

Hussein Abdoh

Assistant professor of Finance

Yu Liu

University of Texas Rio Grande Valley

Date Written: May 28, 2020

Abstract

Firms’ idiosyncratic stock return volatility has become more volatile in the US since the 1960s. This paper investigates why individual stocks became more volatile over the 1964–2013 period using firm-level total factor productivity (TFP). On average, the volatility of idiosyncratic TFP growth rate has increased, being associated with higher idiosyncratic return volatility. The connection between TFP growth and economic profits provides an explanation for the increase in the idiosyncratic volatility of fundamental cash flows. The results are robust when using time-series and panel regressions and controlling for cash flow and earnings variability, size, book-to-market, leverage, profitability, age, dividend yield, and stock illiquidity.

Keywords: Asset Pricing; Production

JEL Classification: G12; D24

Suggested Citation

Abdoh, Hussein and Liu, Yu, Total Factor Productivity and Idiosyncratic Volatility Trends (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3612803 or http://dx.doi.org/10.2139/ssrn.3612803

Hussein Abdoh (Contact Author)

Assistant professor of Finance ( email )

South Carolina
Charleston, SC 29409
United States

Yu Liu

University of Texas Rio Grande Valley ( email )

1201 W. University Dr.
Edinburg, TX
United States

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