Dispersion and Volatility in Stock Returns: An Empirical Investigation

John Y. Campbell · Martin Lettau A

34 citations0/0 files storedNational Bureau of Economic Research

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Market Dynamics and Volatility

Abstract

This paper studies three different measures of monthly stock market volatility: the time-series volatility of daily market returns within the month; the cross-sectional volatility or 'dispersion' of daily returns on industry portfolios, relative to the market, within the month; and the dispersion of daily returns on individual firms, relative to their industries, within the month. Over the period 1962-97 there has been a noticeable increase in firm-level volatility relative to market volatility. All the volatility measures move together in a countercyclical fashion. While market volatility tends to lead the other volatility series, industry-level volatility is a particularly important leading indicator for the business cycle.

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References

1997The Econometrics of Financial Markets 1982The stochastic behavior of common stock variances Value, leverage and interest rate effects 1993Understanding Risk and Return 1991The Variation of Economic Risk Premiums 1989Why Does Stock Market Volatility Change Over Time?1995The Effect of Uncertainty on Investment: Some Stylized Facts 1996Stock market volatility and the business cycle 1980On Estimating the Expected Return on the Market: An Exploratory Investigation

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1999Idiosyncratic Risk 2005The Information Content of Idiosyncratic Volatility 2000Cross-sectional variations in the degree of global integration: the case of Russian equities

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