Both the cross-sectional dispersion of U.S. stock returns and the VIX provide forecasts of alpha dispersion across high- and low-performing portfolios of stocks that are statistically and economically significant. These findings suggest that absolute return investors can use cross-sectional...

We derive and interpret the main results of Modern Portfolio Theory and the Theory of Active Portfolio Management from the perspective that, for active investors, the cross-sectional dispersion of returns is more relevant as a measure of risk than time series volatility. We show that all key...

We compare the ex-dividend day stock returns and trading volume of foreign stocks that trade in U.S. markets as American Depository Receipts (ADRs) with the ex-day returns and volume of a matched sample of U.S. stocks. This experiment allows us to investigate whether differences in the way...

A subset of investors, termed “behavioral investors”, are subject to random risk aversion shocks, the distribution of which is assumed to be beta. A second investor cohort, termed “arbitrageurs”, attempts to exploit the risk aversion shocks of behavioral investors. Arbitrageur presence...