Management forecasts of volatility

Atif Ellahie and Xiaoxia Peng ()
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Xiaoxia Peng: University of Utah

Review of Accounting Studies, 2021, vol. 26, issue 2, No 5, 620-655

Abstract: Abstract We examine the predictive information content of the management forecasts of stock return volatility (i.e., expected volatility) that are disclosed in annual reports. We find that expected volatility predicts near-term and longer-term stock return volatility and earnings volatility incremental to implied volatility, historical volatility, firm characteristics, and alternative measures of uncertainty. We also find that expected volatility reflects managers’ private information about their firms’ future investment activities, such as mergers and acquisitions and R&D intensity. Finally, we find that the predictive power of expected volatility shrinks when managers have stronger incentives to manage earnings. Overall, we provide novel evidence that management forecasts of volatility contain private information about future uncertainty that can help forecast volatility.

Keywords: Volatility forecasting; Expected volatility; Disclosure; Management forecasts (search for similar items in EconPapers)
JEL-codes: G13 G14 M41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11142-020-09567-4

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