Stock market dispersion, the business cycle and expected factor returns

Timotheos Angelidis, Athanasios Sakkas and Nikolaos Tessaromatis

Journal of Banking & Finance, 2015, vol. 59, issue C, 265-279

Abstract: We provide evidence using data from the G7 countries suggesting that return dispersion may serve as an economic state variable in that it reliably predicts time-variation in economic activity, market returns, the value and momentum premia and market volatility. A relatively high return dispersion predicts a deterioration in business conditions, a higher value premium, a smaller momentum premium and lower market returns. Dispersion based market and factor timing strategies outperform out-of-sample buy and hold strategies. The evidence are robust to alternative specifications of return dispersion and are not driven by US data. Return dispersion conveys incremental information relative to idiosyncratic risk.

Keywords: Stock market return dispersion; Business cycle; Market and factor returns (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:59:y:2015:i:c:p:265-279

DOI: 10.1016/j.jbankfin.2015.04.025

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