Idiosyncratic Return Volatility and the Information Quality Underlying Managerial Discretion

Variation in idiosyncratic return volatility from 1978 to 2009 is attributable to discretionary accrual volatility and the correlation between pre-managed earnings and discretionary accruals reflective of information quality across firms. These results are robust to controls for firm operating uncertainty, growth options, business cycle variations, and firm age and industry effects, and highlight the importance of managerial discretion in determining idiosyncratic volatility