You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:


Log in to your personal account or through your institution.

Why Did Individual Stocks Become More Volatile?

Steven X. Wei and Chu Zhang
The Journal of Business
Vol. 79, No. 1 (January 2006), pp. 259-292
DOI: 10.1086/497411
Stable URL:
Page Count: 34
Subjects: Business Finance
  • Download PDF
  • Add to My Lists
  • Cite this Item
Why Did Individual Stocks Become More Volatile?
We're having trouble loading this content. Download PDF instead.


We investigate why individual stocks become more volatile over the 1976–2000 period, during which quarterly accounting data are available at the firm level. On average, corporate earnings have deteriorated and their volatilities have increased over the sample period. This is more evident for newly listed stocks than for existing stocks. The stock return volatility is negatively related to the return‐on‐equity and positively related to the volatility of the return‐on‐equity in cross‐sections. The upward trend in average stock return volatility is fully accounted for by the downward trend in the return‐on‐equity and the upward trend in the volatility of the return‐on‐equity.

Notes and References

This item contains 19 references.

  • ['Campbell, J., and R. Shiller. 1988. The dividend‐price ratio and expectations of future dividends and discount factors. Review of Financial Studies 1: 195–227.']
  • ['Campbell, J. Y., M. Lettau, B. G. Malkiel, and Y. Xu. 2001. Have individual stocks become more volatile? An empirical exploration of idiosyncratic risk, Journal of Finance 56: 1–43.']
  • ['Cochrane, J. 1992. Explaining the variance of price‐dividend ratios. Review of Financial Studies 5: 243–280.']
  • ['Duffee, G. 1995. Stock returns and volatility: A firm‐level analysis. Journal of Financial Economics 37: 399–420.']
  • ['Durnev, A., R. Morck, and B. Young. 2000. Does firm‐specific information in stock prices guide capital allocation? Working paper.']
  • ['Durnev, A., R. Morck, B. Young, and P. Zarowin. 2003. Does greater firm‐specific return variation mean more or less informed stock pricing? Journal of Accounting Research 41: 797–836.']
  • ['Fama, Eugene, and Ken French. 1992. The cross‐section of expected stock returns. Journal of Finance 47: 427–65.']
  • ['———. 2004. New lists: Fundamentals and survival rates. Journal of Financial Economics 72: 229–69.']
  • ['Lakonishok, J., Andrei Shleifer, and Robert Vishny. 2004. Contrarian investment, extrapolation, and risk. Journal of Finance 49: 1541–78.']
  • ['Lintner, J. 1956. Distribution of incomes of corporations among dividends, retained earnings, and taxes. American Economic Review 66: 97–113.']
  • ['Malkiel, B. G., and Y. Xu. 2003. Investigating the behavior of idiosyncratic volatility. Journal of Business 76: 613–44.']
  • ['Marsh, T., and R. C. Merton. 1986. Dividend variability and variance bounds tests for the rationality of stock market prices. American Economic Review 76: 483–498.']
  • ['Morck, R., B. Yeung, and W. Yu. 2000. The information content of stock markets: Why do emerging markets have synchronous stock price movements? Journal of Financial Economics 58: 215–260.']
  • ['Pástor, L. and P. Veronesi 2003. Stock valuation and learning about profitability. Journal of Finance 58: 1749–89.']
  • ['Roll, R. 1988. \n\\documentclass{aastex}\n\\usepackage{amsbsy}\n\\usepackage{amsfonts}\n\\usepackage{amssymb}\n\\usepackage{bm}\n\\usepackage{mathrsfs}\n\\usepackage{pifont}\n\\usepackage{stmaryrd}\n\\usepackage{textcomp}\n\\usepackage{portland,xspace}\n\\usepackage{amsmath,amsxtra}\n\\usepackage[OT2,OT1]{fontenc}\n\\newcommand\\cyr{\n\\renewcommand\\rmdefault{wncyr}\n\\renewcommand\\sfdefault{wncyss}\n\\renewcommand\\encodingdefault{OT2}\n\\normalfont\n\\selectfont}\n\\DeclareTextFontCommand{\\textcyr}{\\cyr}\n\\pagestyle{empty}\n\\DeclareMathSizes{10}{9}{7}{6}\n\\begin{document}\n\\landscape\n$R^{2},$\n\\end{document}\n Journal of Finance 43: 541–566.']
  • ['Schwert, G. W. 1989. Why does stock market volatility change over time? Journal of Finance 44: 1115–1153.']
  • ['———. 2002: Stock volatility in the new millennium: How wacky is NASDAQ? Journal of Monetary Economics 49: 3–26.']
  • ['Shiller, R. J. 1981. Do stock price move too much to be justified by subsequent changes in dividends? American Economic Review 71: 421–436.']
  • ['Vuolteenaho, T. 2002. What drives firm‐level stock returns? Journal of Finance 57: 233–264.']