S&P 500 Cash Stock Price Volatilities

Authors

  • LAWRENCE HARRIS

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    • School of Business Administration, University of Southern California and Office of Economic Analysis, U.S. Securities and Exchange Commission. I wish to thank Mary (Denny) McSweeny and Steve Hornstein for their valuable research assistance and the referee and editor for their many suggestions and insights. The opinions expressed in this paper do not necessarily reflect those of the U.S. Securities and Exchange Commission or those of the author's colleagues on its staff.


ABSTRACT

S&P 500 stock return volatilities are compared to the volatilities of a matched set of stocks, after controlling for cross-sectional differences in firm attributes known to affect volatility. No significant difference in volatility is observed between 1975 and 1983—before the start of trade in index futures and index options. Since then, S&P 500 stocks have been relatively more volatile. The difference is statistically, but not economically, significant. The relative increase occurs primarily in daily returns and only to a lesser extent in longer interval returns. Other factors besides the start of derivative trade could be responsible for the small increase in volatility.

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