Stock Market Volatility: Friend or Foe?
Accounting and Finance (2020, vol. 60 (4), p. 3477-3492)
26 Pages Posted: 16 Feb 2021 Last revised: 26 Apr 2021
Date Written: May 20, 2020
Although a good deal of research effort has been allocated to understanding the time-series volatility of stock returns – as both market (or systematic) volatility and idiosyncratic (or non-systematic) volatility – the relationship of such volatility with cross-sectional volatility or dispersion of outcomes is sparse. Nevertheless, the quest to understand one must involve the quest to understand the other. In this paper, we investigate the dynamic of the dispersion of return outcomes in generating a portfolio’s expected return outcome. We find that changes in the level of cross-sectional volatility have highly significant implications for portfolio performances and the notion of risk.
Keywords: Investment horizon, Market return, Market; Risk, Stock performance, Volatility
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation