Conditioned Effect Pricing of Return Dispersion

Subject Areas : Journal of Investment Knowledge

Maryam  Davallou ¹ (Assistant Prof, Shahid Beheshti University, Tehran, Iran (Corresponding Author))
Elham  Bahrevar ² (MSc. in Finance, Kharazmi University, Tehran, Iran)

Received: 2017-05-22 Accepted : 2017-08-19 Published : 2018-12-22

Keywords: Return Dispersion, Conditional Pricing, Asset Pricing,

Abstract :

This paper is aimed to test conditioned and unconditioned effect pricing of return dispersion or in other words, investigate the conditional relationship between return dispersion and cross-section stock return in different market conditions including non-conditioned, up and down and extreme up and down. A sample composed of 144 firms listed in Tehran Stock Exchange (TSE) is examined for 1381 to 1392. Fama-MacBeth approach is used to investigate explanatory power of return dispersion. The results suggest that although the addition of returns dispersion to Fama and French three-factor model is leading to an increased explanatory power of the model, this factor is not able to explain cross section return variation. The recent finding is true for up, down and extreme market conditions. So, conditioned and unconditioned effect of return dispersion is not confirmed in TSE. However, beta effect are positive and significant in unconditioned and up markets and is negative and significant in down market. Also, book to market effect is invers and significant in up and extreme up market conditions.  

References:

*       ابراهیم‌زاده، آسو (1389)، توانایی توضیح‌دهندگی بازدهی هر سهم به واسطه معیارهای منتخب در شرایط روند صعودی یا نزولی بورس اوراق بهادار تهران، پایان نامه کارشناسی ارشد، دانشگاه اصفهان.

*       مصدق، سعید (1384). بررسی رابطه ریسک و بازدهی در شرایط مختلف بازار در بورس اوراق بهادار تهران، پایان نامه کارشناسی ارشد، دانشگاه شهید بهشتی.

*       ANURADHA, P.A.N.S. (2011). The Conditional Relation between Beta and Returns: Evidence from Srilanka. Available: http://ssrn.com.

*       Azher, Sara. (2014). The Conditional Relationship between Risk and return: Evidence from an Emerging Market. 4(1), 13-27.

*       Barberis, N., Huang, M. & Santos, T. (2001). Prospect Theory and Asset Prices, Quarterly Journal of Economics, 116(1), 1−53.

*       Cenesizoglu, T. (2011). Size, book-to-market ratio and macroeconomic news. Journal of Empirical Finance, 18, 248–270.

*       Christie, W. & Huang, R. (1994). Equity returns dispersions. Working paper, Vanderbilt University.

*       Connolly, R. & Stivers, C. (2006). Information content and other characteristics of the daily cross-sectional dispersion in stock returns. Journal of Empirical Finance, 13(1), 79-112.

*       Demirer, Riza. & Jategaonkar, Shrikant. (2013). The Conditional Relation between Dispersion and Return, Review of Financial Economics, 22, 125-134.

*       Duffee, G. R. (2001). Asymmetric cross-sectional dispersion in stock returns: evidence and implications. Working paper, U.C. Berkeley.

*       Fama, E. & French, K. (1996). Multifactor Explanations of Asset Pricing Anomalies. Journal of Finance, 51, 55-84.

*       Fama, Eugene. & Macbeth, James. (1973). Risk, Return, and Equilibrium: Empirical Tests. Journal of Political Economy, 81, 607-636.

*       Fletcher, J. (2000). On the conditional relationship between beta and return in international stock returns. International Review of Financial Analysis, 9, 235–245.

*       Hammami, Algia., Ghenimi, Ameni. & Bouri, Abdelfatteh. (2015). Relation between Risk and Return in TUNISIAN’S Stock Market after the Revolution (during political instability), Journal of Academic Finance, 1-20.

*       Ho, R.Y.W., Strange, R. & Piesse, J. (2008). Corporate Financial Leverage and Asset Pricing in the Hong Hong Market. Journal of International Financial Markets, 16, 1-7.

*       Jiang, X. (2010). Return dispersion and expected returns. Financial Markets and Portfolio Management, 24, 107–135.

*       Karacabey, Ali Argun. & Karatepe,Yalçın. (2004). Beta and Returns: Istanbul Stock Exchange Evidence. Investment Management and Financial Innovations, 3, 86-89.

*       Pettengill, G. N., Sundaram, S. & Mathur, I. (1995). The conditional relation between beta and return. Journal of Financial and Quantitative Analysis, 30, 101–116.

*       Ralf, Elsas., Shaer, Mahmoud. & Theissen, Erik. (1999). Beta and Return Revisited-Evidence from the German Stock Market

*       Rezagholizadeh, Mahdieh., Lin, Cynthia C.-Y., Yavari, Kazem. & Sahabi, Bahram. (2013). The Conditional Relationship between Risk and Return in Iran’s Stock Market.

*       Sinaee, Hasanali. & Moradi, Habibolah. (2010). Risk-Return Relationship in Iran Stock Market. International Research Journal of Finance and Economics, 41, 150-162.

*       Solnik, Bruno. & Roulet, Jacques. (2000). Dispersion As Cross-Sectional Correlation. Financial Analyst Journal, 56(1), 54-61.

*       Strang, roger. & Piesse, Jenifer. (2006). Conditional Pricing Effects of beta, size and book-to-market equity in the Hong Kong Stock Market, Research Papers 43.

*       Tang, Gordon Y.N. & Shum, Wai C. (2003). The conditional relationship between beta and returns: recent evidence from international stock markets. International Business Review, 12,109-126.

*       Xiao, Bing. (2016). Conditional Relationship Between Beta and Return in the US Stock Market. Expert Journal of Business and Management, 4(1), 46-55.