Stock Return Volatility Before and After Regulation FD

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Abstract
We examine the effect of Regulation FD on stock return volatility. Critics suggest FD has increased volatility by causing firms to (a) disclose less information, resulting in increased noise trading and pricing errors; or (b) substitute essentially continuous communication to the market through professional analysts with infrequent public announcements, precipitating large price swings. While we find generally higher volatility in the fourth quarter of 2000 (after FD's implementation) than in the fourth quarter of 1999 (before FD's implementation), additional analyses suggest Regulation FD is unlikely the cause. Specifically, we find an increase in neither the proportion of extreme return days nor in negative serial correlation in returns post-FD. We find increased volatility around earnings pre-announcements, but we find an approximately offsetting decrease in volatility around announcements of actual earnings, such that we find no significant increase in volatility attributable to all earnings information release days.

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