Verousis, Thanos and Voukelatos, Nikolaos (2018) 'Cross-sectional dispersion and expected returns.' Quantitative Finance, 18 (5). 813 - 826. ISSN 1469-7688
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Abstract
This study investigates whether the cross-sectional dispersion of stock returns, which reflects the aggregate level of idiosyncratic risk in the market, represents a priced state variable. We find that stocks with high sensitivities to dispersion offer low expected returns. Furthermore, a zero-cost spread portfolio that is long (short) in stocks with low (high) dispersion betas produces a statistically and economically significant return. Dispersion is associated with a significantly negative risk premium in the cross section (–1.32% per annum) which is distinct from premia commanded by alternative systematic factors. These results are robust to stock characteristics and market conditions.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | Cross-sectional dispersion, Cross section of stock returns, Pricing factor |
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre |
| Depositing User: | Elements |
| Date Deposited: | 15 Mar 2019 10:38 |
| Last Modified: | 23 Jul 2019 01:00 |
| URI: | http://repository.essex.ac.uk/id/eprint/24170 |
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