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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