Does idiosyncratic return volatility capture information or noise? Online publication date: Mon, 07-Jan-2019
by Antonio Cerqueira; Claudia Pereira
International Journal of Trade and Global Markets (IJTGM), Vol. 11, No. 4, 2018
Abstract: This paper examines the cross-sectional association between earnings quality and firm-specific return volatility for a sample of UK firms listed in the London Stock Exchange. Identifying the determinants of idiosyncratic volatility has been a topical issue since the Campbell et al. (2001) study which documents a noticeable increase in average firm-level volatility across time. Using panel data, we find that poor information environments resulting from poor earnings quality are associated with higher firm-specific return volatility. This finding is consistent with the noise-based approach of firm-specific return volatility. In addition, we provide empirical evidence that such association becomes stronger after combining accruals quality and the dispersion in analysts' forecasts to describe a poor information environment. These findings are likely to contribute to the debate on whether firm-specific return volatility captures more firm-specific information being impounded in stock prices or essentially reflects noise.
Online publication date: Mon, 07-Jan-2019
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Trade and Global Markets (IJTGM):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email email@example.com