Return Dispersion and Investment Anomalies

53 Pages Posted: 21 Aug 2015 Last revised: 26 Jul 2016

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa

James W. Kolari

Texas A&M University - Department of Finance

Date Written: July 17, 2016

Abstract

Recent research finds that cross-sectional return dispersion provides a risk-based explanation for some investment anomalies, including accrual, investment, and momentum strategies. This study extends the analyses of return dispersion to a broad set of anomalies by testing whether the state of return dispersion is associated with anomalous returns. Empirical results for 12 well-known anomalies indicate a robust link between good and bad states of return dispersion and most anomalies. Also, return dispersion helps to explain a number anomalies regardless of their association with investor sentiment. We conclude that market risk related to return dispersion plays an important role in many investment anomalies.

Keywords: Return dispersion, anomalies, asset pricing

JEL Classification: G12, G14

Suggested Citation

Grobys, Klaus and Kolari, James W., Return Dispersion and Investment Anomalies (July 17, 2016). Available at SSRN: https://ssrn.com/abstract=2647542 or http://dx.doi.org/10.2139/ssrn.2647542

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

James W. Kolari

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

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