DP1923 Dispersion and Volatility in Stock Returns: An Empirical Investigation

Author(s): John Y Campbell, Sangjoon Kim, Martin Lettau
Publication Date: August 1998
Keyword(s): Business Cycles, dispersion, Volatility
JEL(s): E32, G10
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1923

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?95 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.