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

Jaewon Choi, Matthew Richardson

Research output: Contribution to journalArticlepeer-review


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 (US)
Pages (from-to)254-277
Number of pages24
JournalJournal of Financial Economics
Issue number2
StatePublished - Aug 1 2016


  • Asset beta
  • Asset returns
  • Asset volatility
  • Leverage effect
  • Persistence in volatility

ASJC Scopus subject areas

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


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