Cross-sectional Return Dispersion and Time-Variation in Value and Momentum Premiums
Journal of Financial and Quantitative Analysis, Vol. 45, pp. 987-1014, August 2010.
Posted: 20 Mar 2008 Last revised: 28 Jun 2012
Date Written: January 29, 2009
We find that the market's recent cross-sectional dispersion in stock returns is positively related to the subsequent value book-to-market premium and negatively related to the subsequent momentum premium. The partial relation between return dispersion (RD) and the subsequent value and momentum premiums remains strong when controlling for macroeconomic state variables suggested by the literature. Our findings are consistent with recent theoretical insights and empirical evidence which suggest that the market's RD may serve as a leading countercyclical state variable, the value premium is countercyclical, and the momentum premium is procyclical.
Keywords: Value Premium, Book-to-Market Equity Ratio, Momentum, Return Dispersion
JEL Classification: G12, G14
Suggested Citation: Suggested Citation