Asset volatility

Correia, M M and Kang, J and Richardson, S A (2017) Asset volatility. Review of Accounting Studies. ISSN 1380-6653 (In Press)

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Abstract

We examine whether fundamental measures of volatility are incremental to market based measures of volatility in (i) predicting bankruptcies (out of sample), (ii) explaining cross-sectional variation in credit spreads, and (iii) explaining future credit excess returns. Our fundamental measures of volatility include (i) historical volatility in profitability, margins, turnover, operating income growth, and sales growth, (ii) dispersion in analyst forecasts of future earnings, and (iii) quantile regression forecasts of the interquartile range of the distribution of profitability. We find robust evidence that these fundamental measures of volatility improve out of sample forecasts of bankruptcy and are useful in explaining cross-sectional variation in credit spreads. This suggests that an analysis of credit risk can be enhanced with a detailed analysis of fundamental information. As a test case of the benefit of volatility forecasting, we document an improved ability to forecast future credit excess returns, particularly when using fundamental measures of volatility

Item Type: Article
Subjects: C > Credit management
F > Financial risk
L > Liquidation
Subject Areas: Accounting
Date Deposited: 30 Aug 2017 16:20
Last Modified: 08 Sep 2017 16:54
URI: http://lbsresearch.london.edu/id/eprint/860

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