Volatility and Returns in the Philippine Stock Market

Abstract

Excessive volatility creates so much noise that it makes market informational efficiency difficult to attain.  An informationally inefficient market then makes Pareto or allocative efficiency a hit or miss proposition.  Using two measures of the cost of volatility, this paper concludes that stock return volatility is much too high relative to the equity risk premium in the local stock market.  Thus, controlling this volatility may be desirable to the extent that market trading is not constrained.  Most of stock returns volatility appears to be price-driven as against event- or error-driven.  Thus, any measure to dampen volatility must address this particular source