Abstract
We employ bivariate and multivariate nonlinear causality tests to document causality from equity return dispersion to stock market volatility and excess returns, even after controlling for the state of the economy. Expansionary (contractionary) market states are associated with a low (high) level of equity return dispersion, indicating asymmetries in the relationship between return dispersion and economic conditions. Our findings indicate that both return dispersion and business conditions are valid joint forecasters of stock market volatility and excess returns and that return dispersion possesses incremental information regarding future stock return dynamics beyond that which can be explained by the state of the economy.
Subject
Management, Monitoring, Policy and Law,Renewable Energy, Sustainability and the Environment,Geography, Planning and Development
Cited by
25 articles.
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