The volatility of stock investor returns

The volatility of stock investor returns depends not only on the volatility of the stocks they hold but also on their time-varying capital exposure to these holdings. Using individual stocks, portfolios of stocks, and indexes across U.S. and international stock markets, we provide comprehensive evidence that the volatility of investor returns is consistently higher than the corresponding volatility of stock returns across nearly all specifications. The relative magnitude of the volatility differential ranges from 10% to 75%, increasing with investment horizon. This discrepancy is driven primarily by investors’ propensity to "flee volatility," withdrawing equity capital following periods of high volatility.