In 2006, Davis, et al. showed that the increasing volatility trend was actually unique to public firms (that paper also cites the studies that originally found and explored the trend among public firms). Once you look at the entire universe of US firms, public and private, you see an opposite trend, one that I've discussed many times and done some research on with coauthors: declining volatility. So the mystery was actually: why are public firms becoming more volatile while private firms are becoming less volatile?
Fast forward to today. In a new working paper (preliminary and incomplete), coauthors and I show that the trend of increasing volatility among public firms appears to have reversed. Here are data from Compustat*:
|Compustat data (non-confidential)|
Click for larger image
So we can add publicly traded firms to the list of business types that are experiencing declining churn and volatility.
*The volatility measure used here is the "modified Comin" measure discussed in Davis, et al. (2006). Basically think of the standard deviation of a firm's growth rates over a 10-year period, but modified to better use endpoints. The aggregate measure is just an activity-weighted average of the firm measures.