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

See all articles by Chris T. Stivers

Chris T. Stivers

University of Louisville

Licheng Sun

Old Dominion University

Date Written: January 29, 2009

Abstract

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

Stivers, Chris T. and Sun, Licheng, Cross-sectional Return Dispersion and Time-Variation in Value and Momentum Premiums (January 29, 2009). Journal of Financial and Quantitative Analysis, Vol. 45, pp. 987-1014, August 2010.. Available at SSRN: https://ssrn.com/abstract=1064101

Chris T. Stivers (Contact Author)

University of Louisville ( email )

Finance Dept., College of Business
University of Louisville
Louisville, KY 40292
United States
502-852-4829 (Phone)

Licheng Sun

Old Dominion University ( email )

Strome College of Business
Department of Finance
Norfolk, VA 23529-0222
United States

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