Verousis, ThanosVoukelatos, Nikolaos2024-06-212024-06-2120181469-768810.1080/14697688.2017.1414515http://hdl.handle.net/20.500.12127/7499This study investigates whether the cross-sectional dispersion of stock returns, which reflects the aggregate level of idiosyncratic risk in the market, represents a priced state variable. We find that stocks with high sensitivities to dispersion offer low expected returns. Furthermore, a zero-cost spread portfolio that is long (short) in stocks with low (high) dispersion betas produces a statistically and economically significant return. Dispersion is associated with a significantly negative risk premium in the cross section (–1.32% per annum) which is distinct from premia commanded by alternative systematic factors. These results are robust to stock characteristics and market conditions.enCross-Sectional DispersionCross Section of Stock ReturnsPricing FactorQuantitative Finance1469-7696311477