Technological Change and Stock Return Volatility: Evidence from Ecommerce Adoptions

33 Pages Posted: 22 Apr 2003

See all articles by Deepak Agrawal

Deepak Agrawal

KMV Corporation

Sreedhar T. Bharath

Arizona State University (ASU) - Finance Department

Siva Viswanathan

University of Maryland - Robert H. Smith School of Business

Date Written: October 2004

Abstract

This paper is among the first to use a unique controlled empirical setting - traditional firms' adoption of the Internet for commerce - to investigate the impact of changes in firms' technological environment on their stock return volatility. Using three distinct empirical methodologies we detect a significant increase in the idiosyncratic and total stock return volatility when a firm initiates eCommerce. Interestingly, this increase in volatility is observed only for firms that moved online post-June 1998, a period when Internet growth reached critical mass. We find that this increase in volatility is attributable to changes in the firms' product markets, specifically increased demand uncertainty, resulting from the adoption of a new technology-driven channel. We also find that the volatility increase is highest for retailers followed by manufacturers and service firms. Relevant controls rule out firm-specific characteristics as well as market microstructural factors as possible explanatory variables. Our results provide strong evidence of the impact of real activity within a firm on its stock return volatility and highlight the importance of understanding the impact of technological innovations on firms' risk-return profiles.

Keywords: Product Market Changes, Stock Return Volatility, eCommerce, Technology Adoption

JEL Classification: D80, G12, G14, O33

Suggested Citation

Agrawal, Deepak and Bharath, Sreedhar T. and Viswanathan, Siva, Technological Change and Stock Return Volatility: Evidence from Ecommerce Adoptions (October 2004). Available at SSRN: https://ssrn.com/abstract=387543 or http://dx.doi.org/10.2139/ssrn.387543

Deepak Agrawal

KMV Corporation ( email )

1620 Montgomery Street
Suite 140
San Francisco, CA 94111
United States

Sreedhar T. Bharath

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Siva Viswanathan (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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