Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests

Riza Demirer, Rangan Gupta, Zhihui Lv and Wing-Keung Wong
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Zhihui Lv: KLASMOE & School of Mathematics and Statistics, Northeast Normal University, Changchun 130024, China

Sustainability, 2019, vol. 11, issue 2, 1-15

Abstract: We employ bivariate and multivariate nonlinear causality tests to document causality from equity return dispersion to stock market volatility and excess returns, even after controlling for the state of the economy. Expansionary (contractionary) market states are associated with a low (high) level of equity return dispersion, indicating asymmetries in the relationship between return dispersion and economic conditions. Our findings indicate that both return dispersion and business conditions are valid joint forecasters of stock market volatility and excess returns and that return dispersion possesses incremental information regarding future stock return dynamics beyond that which can be explained by the state of the economy.

Keywords: equity return dispersion; stock market volatility; business cycle; multivariate causality; C32; E32; G10 (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests (2018)
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