Download or read book Dispersion of Beliefs, Ambiguity, and the Cross-Section of Stock Returns written by Deok-Hyeon Lee and published by . This book was released on 2019 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether ambiguity is priced in the cross-section of expected stock returns. Using the cross-sectional dispersion in real-time forecasts of real GDP growth as a measure for ambiguity, we find that high ambiguity beta stocks earn lower future returns relative to low ambiguity beta stocks. This negative predictive relation between the ambiguity beta and future returns is consistent with theory, which predicts the marginal utility of consumption to rise when ambiguity is high. We further show that the ambiguity premium remains significant after controlling for exposures to expected real GDP growth, VIX, and financial market dislocations index.