![]() However, as preparation, we first consider market dispersion from a stock perspective.Īs before, performance is measured against the unbiased market-capitalisation (market-cap) weighted benchmark. If we want to examine how market dispersion affects manager outperformance we have to measure the dispersion of active portfolio returns instead. This measure describes the dispersion in individual stock returns. Here we explain the methodology for calculating an asset-weighted standard deviation of share returns, often also referred to as the cross-sectional standard deviation. Opportunities for successful security selection abounds when market dispersion is high, as discussed before. Market dispersion refers to the variation in returns of the market’s underlying securities.
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