Cross Sectional Return Dispersion And The Equity Premium
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Cross Sectional Return Dispersion And The Equity Premium
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Author : Paulo F. Maio
language : en
Publisher:
Release Date : 2019
Cross Sectional Return Dispersion And The Equity Premium written by Paulo F. Maio and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
In this paper, I examine whether stock return dispersion (RD) provides useful information about future stock returns. RD consistently forecasts a decline in the excess market return at multiple horizons, and compares favorably with alternative predictors used in the literature. The out-of-sample performance of RD tends to beat the alternative predictors, and is economically significant as indicated by the certainty equivalent gain associated with a trading investment strategy. RD has greater forecasting power for big and growth stocks compared to small and value stocks, respectively. I discuss a theoretical mechanism giving rise to the negative correlation between RD and the equity premium.
Cross Sectional Dispersion And Expected Returns
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Author : Thanos Verousis
language : en
Publisher:
Release Date : 2016
Cross Sectional Dispersion And Expected Returns written by Thanos Verousis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
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, after accounting for its exposure to other systematic risk factors. Dispersion is associated with a significantly negative risk premium in the cross-section (-1.32% per annum) which is distinct from premia commanded by a set of alternative systematic factors. These results are robust to a wide set of stock characteristics, market conditions, and industry groupings.
Cross Sectional Return Dispersion And Time Variation In Value And Momentum Premiums
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Author : Chris T. Stivers
language : en
Publisher:
Release Date : 2012
Cross Sectional Return Dispersion And Time Variation In Value And Momentum Premiums written by Chris T. Stivers and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
We find that the market's recent cross-sectional dispersion in stock returns is positively related to the subsequent value book-to-market premium and negatively related to the subsequent momentum premium. The partial relation between return dispersion (RD) and the subsequent value and momentum premiums remains strong when controlling for macroeconomic state variables suggested by the literature. Our findings are consistent with recent theoretical insights and empirical evidence which suggest that the market's RD may serve as a leading countercyclical state variable, the value premium is countercyclical, and the momentum premium is procyclical.
The Second Moment Matters Cross Sectional Dispersion Of Firm Valuations And Expected Stock Returns
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Author : Danling Jiang
language : en
Publisher:
Release Date : 2013
The Second Moment Matters Cross Sectional Dispersion Of Firm Valuations And Expected Stock Returns written by Danling Jiang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
Behavioral theories predict that firm valuation dispersion in the cross section (ldquo;dispersionrdquo;) measures aggregate overpricing caused by investor overconfidence and should be negatively related to expected aggregate returns. This paper develops and tests these hypotheses. Consistent with the model predictions, I find that measures of dispersion are positively related to aggregate valuations, trading volume, idiosyncratic volatility, past market returns, and current and future investor sentiment indexes. Dispersion is a strong negative predictor of subsequent shortand long-term market excess returns. Market beta is positively related to stock returns when the beginning-of-period dispersion is low and this relationship reverses when initial dispersion is high. A simple forecast model based on dispersion significantly outperforms a naive model based on historical equity premium in out-of-sample tests and the predictability is stronger in economic downturns.
The Cross Sectional Dispersion Of Stock Returns Alpha And The Information Ratio
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Author : Larry R. Gorman
language : en
Publisher:
Release Date : 2019
The Cross Sectional Dispersion Of Stock Returns Alpha And The Information Ratio written by Larry R. Gorman and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
Both the cross-sectional dispersion of U.S. stock returns and the VIX provide forecasts of alpha dispersion across high- and low-performing portfolios of stocks that are statistically and economically significant. These findings suggest that absolute return investors can use cross-sectional dispersion and time-series volatility as signals to improve the tactical timing of their alpha-focused strategies. Because active risk increases by a greater amount than alpha, however, high return dispersion/high VIX periods are followed by slightly lower information ratio dispersion. Therefore, relative return investors who keep score in an information ratio framework are unlikely to find return dispersion useful as a signal regarding when to increase or decrease the activeness of their portfolio strategies.
Return Dispersion Size And The Cross Section Of Stock Returns Evidence From The German Stock Market
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Author : Antonina Waszczuk
language : en
Publisher:
Release Date : 2013
Return Dispersion Size And The Cross Section Of Stock Returns Evidence From The German Stock Market written by Antonina Waszczuk and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This paper investigates whether return dispersion (RD), proxied by the cross-sectional standard deviation of stock returns, captures variation in returns across German stocks between 1989 and 2010. I address existing evidence based on U.S. equity data that RD may serve as a proxy economic state variable. In the out-of-sample test I confirm the countercyclical character of RD and show that it loads significantly negatively on future equal-weighted average market return. Sorting stocks by their absolute loadings on RD, I uncover the negative pattern in simple average portfolio returns. Further analysis indicates that the negative relationship between absolute loadings on RD and future returns is present only in micro stock subgroup. This finding casts doubt on the RD as proxy for state variable. Instead, it suggests its relation to mispricing and idiosyncratic risk components. As a secondary results I confirm the existence of reversed size effect in German stock market over the considered period.
Consumption Dividends And The Cross Section Of Equity Returns
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Author : Ravi Bansal
language : en
Publisher:
Release Date : 2012
Consumption Dividends And The Cross Section Of Equity Returns written by Ravi Bansal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
A central economic idea is that an asset's risk premium is determined by its ability to insure against fluctuations in consumption (i.e., by the consumption beta). Cross-sectional differences in consumption betas mirror differences in the exposure of the asset's dividends to aggregate consumption, an implication of many general equilibrium models. Hence, cross-sectional differences in the exposure of dividends to consumption may provide valuable information regarding the cross-sectional dispersion in risk premia. We measure the exposure of dividends to consumption (labeled as consumption leverage) by the covariance of ex-post dividend growth rates with the expected consumption growth rate, and alternatively by relying on stochastic cointegration between dividends and consumption. Cross-sectional differences in this consumption leverage parameter can explain about 50% of the variation in risk premia across 30 portfolios - which include 10 momentum, 10 size, and 10 book-to-market sorted portfolios. The consumption leverage model can justify much of the observed value, momentum, and size risk premium spreads. For this asset menu, alternative models proposed in the literature (including time varying beta models) have considerable difficulty in justifying the cross-sectional dispersion in the risk premia. Our measures of consumption leverage are driven by the exposure of dividend growth rates to low frequency movements in consumption growth. We document that it is this exposure that contains valuable information regarding the cross-sectional differences in risk premia across assets.
The Cross Section Of Stock Returns
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Author : Stijn Claessens
language : en
Publisher: World Bank Publications
Release Date : 1995
The Cross Section Of Stock Returns written by Stijn Claessens and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Rate of return categories.
Expectations And The Structure Of Share Prices
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Author : John G. Cragg
language : en
Publisher: University of Chicago Press
Release Date : 2009-05-15
Expectations And The Structure Of Share Prices written by John G. Cragg and has been published by University of Chicago Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-05-15 with Business & Economics categories.
John G. Cragg and Burton G. Malkiel collected detailed forecasts of professional investors concerning the growth of 175 companies and use this information to examine the impact of such forecasts on the market evaluations of the companies and to test and extend traditional models of how stock market values are determined.
Growth Or Glamour
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Author : John Y. Campbell
language : en
Publisher:
Release Date : 2005
Growth Or Glamour written by John Y. Campbell and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Stocks categories.
The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices (driven by movements in the equity risk premium), while the cash flows of value stocks are particularly sensitive to permanent movements in aggregate stock prices (driven by market-wide shocks to cash flows.) Thus the high betas of growth stocks with the market's discount-rate shocks, and of value stocks with the market's cash-flow shocks, are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely "glamour stocks" whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of firm-level risk have predictive power for firms' betas with market-wide cash flows, and this predictive power arises from the behavior of firms' cash flows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.