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Sustainability 2019, 11(2), 351; https://doi.org/10.3390/su11020351

Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests

1
Department of Economics & Finance, Southern Illinois University Edwardsville, School of Business, Edwardsville, IL 62026-1102, USA
2
Department of Economics, University of Pretoria, Pretoria 0002, South Africa
3
KLASMOE & School of Mathematics and Statistics, Northeast Normal University, Changchun 130024, China
4
Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taichung 41354, Taiwan
5
Department of Medical Research, China Medical University Hospital, Taichung 40402, Taiwan
6
Department of Economics and Finance, Hang Seng University of Hong Kong, Shatin, Hong Kong 999077, China
*
Author to whom correspondence should be addressed.
Received: 30 October 2018 / Revised: 26 December 2018 / Accepted: 29 December 2018 / Published: 11 January 2019
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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. View Full-Text
Keywords: equity return dispersion; stock market volatility; business cycle; multivariate causality; JEL Codes; C32; E32; G10 equity return dispersion; stock market volatility; business cycle; multivariate causality; JEL Codes; C32; E32; G10
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Demirer, R.; Gupta, R.; Lv, Z.; Wong, W.-K. Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests. Sustainability 2019, 11, 351.

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