Does idiosyncratic return volatility capture information or noise?
This paper examines the association between earnings management and firm-specific return volatility for a sample of firms listed on 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 no...
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| Formato: | article |
| Idioma: | eng |
| Publicado em: |
2017
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| Texto completo: | http://hdl.handle.net/10400.22/10357 |
| País: | Portugal |
| Oai: | oai:recipp.ipp.pt:10400.22/10357 |
| Resumo: | This paper examines the association between earnings management and firm-specific return volatility for a sample of firms listed on 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 earnings management is 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 gets stronger when combining accruals quality and the dispersion in analysts’ forecast 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. |
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