Financial Reporting Quality and Idiosyncratic Return Volatility Over the Last Four Decades

60 Pages Posted: 18 Jan 2005 Last revised: 16 Mar 2010

See all articles by Shivaram Rajgopal

Shivaram Rajgopal

Columbia Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

Date Written: September 29, 2008

Abstract

Campbell, Lettau, Malkiel and Xu (2001) show that stock returns of individual firms have become more volatile in the U.S. since 1960. We hypothesize and find that deteriorating earnings quality is associated with higher idiosyncratic return volatility over the period 1962-2001. These results are robust to controlling for (i) inter-temporal changes in the disclosure of value-relevant earnings information, sophistication of investors and for the possibility that earnings quality can be informative about future cash flows; (ii) stock return performance, cash flow operating performance, cash flow variability, growth, leverage and firm size; and (iii) accounting for new listings, high technology firms and firm-years with losses, mergers and acquisitions and financial distress.

Keywords: information risk, idiosyncratic volatility, earnings quality, forecast dispersion

JEL Classification: D8, M41, G10

Suggested Citation

Rajgopal, Shivaram and Venkatachalam, Mohan, Financial Reporting Quality and Idiosyncratic Return Volatility Over the Last Four Decades (September 29, 2008). Available at SSRN: https://ssrn.com/abstract=650081 or http://dx.doi.org/10.2139/ssrn.650081

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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