The Dispersion Effect in International Stock Returns

25 Pages Posted: 1 Jun 2008 Last revised: 28 Aug 2015

See all articles by Markus Leippold

Markus Leippold

University of Zurich; Swiss Finance Institute

Harald Lohre

Robeco Quantitative Investments; Lancaster University Management School

Date Written: September 3, 2014

Abstract

We find that stocks exhibiting high dispersion in analysts’ earnings forecasts not only underperform in the U.S. but also in some European countries. Investigating the abnormal returns generated by the dispersion strategy around the world for the 1990-2008 sample period, we observe that the returns of the strategy are uneven, with large abnormal returns realized during the mid-to-late 1990s and the 2000-2003 period. In particular, we document that the dispersion effect is most profitable in a very narrow time frame around the burst of the technology bubble. As a consequence, the dispersion hedge strategy would have been rather difficult to implement, especially given that the highest mispricing obtains for stocks characterized by high arbitrage costs.

Keywords: International Dispersion Effect, Information Uncertainty, Liquidity

JEL Classification: G12, G14, G15

Suggested Citation

Leippold, Markus and Lohre, Harald, The Dispersion Effect in International Stock Returns (September 3, 2014). Journal of Empirical Finance, Vol. 29, December 2014, pp. 331–342, Available at SSRN: https://ssrn.com/abstract=1139412 or http://dx.doi.org/10.2139/ssrn.1139412

Markus Leippold

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Harald Lohre (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/people/harald-lohre

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