Abstract

http://ssrn.com/abstract=1444868
 
 

References (25)



 
 

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The Cross-Sectional Dispersion of Stock Returns, Alpha and the Information Ratio


Larry R. Gorman


California Polytechnic State University

Steven G. Sapra


Analytic Investors, Inc.; Claremont Graduate University

Robert A. Weigand


Washburn University School of Business

January 21, 2010

Journal of Investing, Forthcoming

Abstract:     
Both the cross-sectional dispersion of U.S. stock returns and the VIX provide forecasts of alpha dispersion across high- and low-performing portfolios of stocks that are statistically and economically significant. These findings suggest that absolute return investors can use cross-sectional dispersion and time-series volatility as signals to improve the tactical timing of their alpha-focused strategies. Because active risk increases by a greater amount than alpha, however, high return dispersion/high VIX periods are followed by slightly lower information ratio dispersion. Therefore, relative return investors who keep score in an information ratio framework are unlikely to find return dispersion useful as a signal regarding when to increase or decrease the activeness of their portfolio strategies.

Number of Pages in PDF File: 37

Keywords: Alpha, Information Ratio, Cross-Sectional Dispersion, Volatility, VIX

JEL Classification: G11, G17

Accepted Paper Series


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Date posted: August 6, 2009 ; Last revised: February 9, 2010

Suggested Citation

Gorman, Larry R. and Sapra, Steven G. and Weigand, Robert A., The Cross-Sectional Dispersion of Stock Returns, Alpha and the Information Ratio (January 21, 2010). Journal of Investing, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1444868

Contact Information

Larry Gorman
California Polytechnic State University ( email )
College of Business
Department of Finance
San Luis Obispo, CA 93407
United States
805-756-1312 (Phone)
805-756-1473 (Fax)
Steven Sapra (Contact Author)
Analytic Investors, Inc. ( email )
555 W. 5th St.
50th Floor
Los Angeles, CA 90013
United States
213-688-3015 (Phone)
213-688-8856 (Fax)
HOME PAGE: http://www.analyticinvestors.com
Claremont Graduate University ( email )
150 E. Tenth Street
Claremont, CA 91711
United States
Robert A. Weigand
Washburn University School of Business ( email )
Topeka, KS
United States
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