The volatility of a firm's assets and the leverage effect

Jaewon Choi, Matthew Richardson

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

We investigate the volatility of firms’ assets in contrast to existing studies that focus on equity volatility. We estimate asset volatility using a comprehensive data set on the market values of corporate security returns. We find significant differences between the properties of equity and asset volatilities with implications for several important areas of finance. First, financial leverage has a large influence on equity volatility. Second, leverage and asset volatility have permanent and transitory effects, respectively, on equity volatility, helping explain the short- and long-run dynamics of equity volatility. Third, we analyze and compare the cross-section of asset versus equity returns.

Original languageEnglish
Pages (from-to)254-277
Number of pages24
JournalJournal of Financial Economics
Volume121
Issue number2
DOIs
Publication statusPublished - 2016 Aug 1

Fingerprint

Leverage effect
Assets
Equity
Corporate security
Financial leverage
Cross section
Leverage
Short-run
Finance
Equity returns
Market value
Security returns

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

Choi, Jaewon ; Richardson, Matthew. / The volatility of a firm's assets and the leverage effect. In: Journal of Financial Economics. 2016 ; Vol. 121, No. 2. pp. 254-277.
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The volatility of a firm's assets and the leverage effect. / Choi, Jaewon; Richardson, Matthew.

In: Journal of Financial Economics, Vol. 121, No. 2, 01.08.2016, p. 254-277.

Research output: Contribution to journalArticle

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