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Dispersion and Volatility in Stock Returns: An Empirical Investigation

John Campbell (), Sangjoon Kim and Martin Lettau ()

No 1923, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 1962–95 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.

Keywords: Business Cycles; dispersion; Volatility (search for similar items in EconPapers)
JEL-codes: E32 G10 (search for similar items in EconPapers)
Date: 1998-08
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Working Paper: Dispersion and Volatility in Stock Returns: An Empirical Investigation (1999) Downloads
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