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

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...

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Main Authors:	Riza Demirer, Rangan Gupta, Zhihui Lv, Wing-Keung Wong
Format:	Article
Language:	English
Published:	MDPI AG 2019-01-01
Series:	Sustainability
Subjects:	equity return dispersion stock market volatility business cycle multivariate causality JEL Codes C32 E32 G10
Online Access:	http://www.mdpi.com/2071-1050/11/2/351

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spelling	doaj-b98164f998c64dc3a62674b832f9424a2020-11-25T00:38:32ZengMDPI AGSustainability2071-10502019-01-0111235110.3390/su11020351su11020351Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality TestsRiza Demirer0Rangan Gupta1Zhihui Lv2Wing-Keung Wong3Department of Economics & Finance, Southern Illinois University Edwardsville, School of Business, Edwardsville, IL 62026-1102, USADepartment of Economics, University of Pretoria, Pretoria 0002, South AfricaKLASMOE & School of Mathematics and Statistics, Northeast Normal University, Changchun 130024, ChinaDepartment of Finance, Fintech Center, and Big Data Research Center, Asia University, Taichung 41354, TaiwanWe 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.http://www.mdpi.com/2071-1050/11/2/351equity return dispersionstock market volatilitybusiness cyclemultivariate causalityJEL CodesC32E32G10
collection	DOAJ
language	English
format	Article
sources	DOAJ
author	Riza Demirer Rangan Gupta Zhihui Lv Wing-Keung Wong
spellingShingle	Riza Demirer Rangan Gupta Zhihui Lv Wing-Keung Wong Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests Sustainability equity return dispersion stock market volatility business cycle multivariate causality JEL Codes C32 E32 G10
author_facet	Riza Demirer Rangan Gupta Zhihui Lv Wing-Keung Wong
author_sort	Riza Demirer
title	Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests
title_short	Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests
title_full	Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests
title_fullStr	Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests
title_full_unstemmed	Equity Return Dispersion and Stock Market Volatility: Evidence from Multivariate Linear and Nonlinear Causality Tests
title_sort	equity return dispersion and stock market volatility: evidence from multivariate linear and nonlinear causality tests
publisher	MDPI AG
series	Sustainability
issn	2071-1050
publishDate	2019-01-01
description	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.
topic	equity return dispersion stock market volatility business cycle multivariate causality JEL Codes C32 E32 G10
url	http://www.mdpi.com/2071-1050/11/2/351
work_keys_str_mv	AT rizademirer equityreturndispersionandstockmarketvolatilityevidencefrommultivariatelinearandnonlinearcausalitytests AT rangangupta equityreturndispersionandstockmarketvolatilityevidencefrommultivariatelinearandnonlinearcausalitytests AT zhihuilv equityreturndispersionandstockmarketvolatilityevidencefrommultivariatelinearandnonlinearcausalitytests AT wingkeungwong equityreturndispersionandstockmarketvolatilityevidencefrommultivariatelinearandnonlinearcausalitytests
_version_	1725296986240843776

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

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