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Dispersion and Volatility in Stock Returns: An Empirical Investigation

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  • John Y. Campbell
  • Martin Lettau

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7144.

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Date of creation: May 1999
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Handle: RePEc:nbr:nberwo:7144

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Citations

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Cited by:
  1. Beaulieu, Marie-claude & Cosset, Jean-Claude & Essaddam, Naceur, 2002. "The Impact of Political Risk on the Volatility of Stock Returns: the Case of Canada," Cahiers de recherche, CIRPEE 0208, CIRPEE.
  2. Dunbar, Geoffrey, 2013. "Returns-to-scale and the equity premium puzzle," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(9), pages 1736-1754.
  3. Hyun-Han Shin & Rene M. Stulz, 2000. "Firm Value, Risk, and Growth Opportunities," NBER Working Papers 7808, National Bureau of Economic Research, Inc.
  4. Andreou, Elena & Ghysels, Eric, 2002. "Rolling-Sample Volatility Estimators: Some New Theoretical, Simulation, and Empirical Results," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(3), pages 363-76, July.
  5. Li, Tao, 2007. "Heterogeneous beliefs, asset prices, and volatility in a pure exchange economy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(5), pages 1697-1727, May.
  6. John Y. Campbell & Martin Lettau, 1999. "Dispersion and Volatility in Stock Returns: An Empirical Investigation," NBER Working Papers 7144, National Bureau of Economic Research, Inc.
  7. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 56(1), pages 1-43, 02.
  8. Fedorov, Pavel & Sarkissian, Sergei, 2000. "Cross-sectional variations in the degree of global integration: the case of Russian equities," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 10(2), pages 131-150, June.
  9. Taiji Harashima, 2004. "The Bad Government: A Source of Uncertainty and Business Fluctuations," Microeconomics, EconWPA 0407010, EconWPA.
  10. Renatas Kizys & Peter Spencer, 2007. "Assessing the Relation between Equity Risk Premia and Macroeconomic Volatilities," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 140, Money Macro and Finance Research Group.
  11. Taiji Harashima, 2004. "A More Realistic Endogenous Time Preference Model and the Slump in Japan," Macroeconomics, EconWPA 0402015, EconWPA, revised 09 Feb 2004.
  12. Jörg Döpke & Christian Pierdzioch, 2000. "Stock Market Dispersion, Sectoral Shocks, and the German Business Cycle," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 136(IV), pages 531-555, December.

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