Social and Behavioral Sciences Commons^™

Persistence Of Ex-Ante Volatility And The Cross-Section Of Stock Returns, Prodosh Simlai

Economics & Finance Faculty Publications

We suggest a new measure of total ex-ante volatility () in stock returns, which includes traditional non-market (or idiosyncratic) risk and the unexpected component of market return. We find that the portfolio-level measure exhibits strong predictive power for the cross-section of average returns during the post-1963 period. We demonstrate that (1) the persistence of gives rise to economically significant spread in returns between value and growth stocks, and (2) the cross-sectional dispersion in stock returns is positively related to the estimated value of . The benefit of the measure is that it is countercyclical and contains relevant information about the …