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Distribution uncertainty and expected stock returns

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  • Chae, Joon
  • Lee, Eun Jung

Abstract

We investigate the significance of differences of the return distribution (distribution uncertainty) in the cross-sectional pricing of stocks. Our parsimonious proxies for distribution uncertainty measure the difference of distributions between an individual stock return and the market return. We find that stocks with higher distribution uncertainty exhibit higher returns, and the difference between the returns on the portfolios with the highest and lowest distribution uncertainty is significantly positive. We investigate the robustness of our empirical results and find that the impact of distribution uncertainty persists after accounting for firm characteristics.

Suggested Citation

  • Chae, Joon & Lee, Eun Jung, 2018. "Distribution uncertainty and expected stock returns," Finance Research Letters, Elsevier, vol. 25(C), pages 55-61.
    • Handle: RePEc:eee:finlet:v:25:y:2018:i:c:p:55-61
    DOI: 10.1016/j.frl.2017.10.006
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    More about this item

    Keywords

    Distribution uncertainty; Expected stock returns; Differences of return distribution;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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