Dispersion and Volatility in Stock Returns: an Empirical Investigation

42 Pages Posted: 21 Sep 1998  

Martin Lettau

University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 1999

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 1962-97 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.

Suggested Citation

Lettau, Martin and Campbell, John Y., Dispersion and Volatility in Stock Returns: an Empirical Investigation (May 1999). NBER Working Paper No. w7144. Available at SSRN: https://ssrn.com/abstract=129249

Martin Lettau (Contact Author)

University of California - Haas School of Business ( email )

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HOME PAGE: http://faculty.haas.berkeley.edu/lettau/

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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John Y. Campbell

Harvard University - Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

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