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Dispersion and Volatility in Stock Returns: An Empirical Investigation

  • Campbell, John Y
  • Kim, Sangjoon
  • Lettau, Martin

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 1962–95 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1923.

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Date of creation: Aug 1998
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Handle: RePEc:cpr:ceprdp:1923
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