STOCK RETURNS AND VOLATILITY - A FIRM-LEVEL ANALYSIS

It has been previously documented that individual firms' stock return volatility rises after stock prices fall. This paper finds that this s tatistical relation is largely due to a positive contemporaneous relat ion between firm stock returns and firm stock return volatility. This positive relation is strongest for both small firms and firms with lit tle financial leverage. At the aggregate level, the sign of this conte mporaneous relation is reversed. The reasons for the difference betwee n the aggregate- and firm-level relations are explored.