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- Title
Asset volatility.
- Authors
Correia, Maria; Kang, Johnny; Richardson, Scott
- 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 help explain 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.
- Subjects
MARKET volatility; MARKET basket analysis; BANKRUPTCY; BOND market; CAPITAL market; ECONOMICS
- Publication
Review of Accounting Studies, 2018, Vol 23, Issue 1, p37
- ISSN
1380-6653
- Publication type
Article
- DOI
10.1007/s11142-017-9431-1