Abstract
We study the cross-sectional dispersion in daily stock returns, or daily return dispersion (RD). Our primary empirical contribution is to demonstrate that RD contains reliable incremental information about the future traditional volatility of both firm-level and portfolio-level returns. The relation between RD and future stock volatility is pervasive across time and across different industry portfolios, size-based portfolios, and beta-based portfolios. Further, our results suggest that RD contains more incremental information about the future volatility of firm-level stock returns than do lagged market-level return shocks. To further characterize RD and assist in interpretation, we also document how dispersion varies with stock turnover and macroeconomic news.
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