Metrics: DVAX Dispersion

DVAX measures the cross-sectional dispersion of daily stock returns.  The index is a standard deviation (annualized) of log-relative returns, across more than 1,000 NYSE and Nasdaq issues.

Market dispersion is important for three reasons.  First, it represents a kind of "internal" market volatility.  The market can be volatile even when the averages change little, if individual volatilities are large but offsetting.

Second, dispersion affects the inferential precision of market indexes.  Although index readings are commonly taken as giving specific and certain value, they are actually sampled estimates.  An estimate is more or less reliable depending on the variance of the components (central limit theorem).  So market dispersion defines how closely a composite index can be interpreted.

Finally, dispersion has directional implications.  Low DVAX is clearly associated with impending market decline, as is evident in the chart below.  (The relation is persistent and significant, as we demonstrate in DejaVu studies.)

 

 

To enquire about access and analysis with DVAX Dispersion, you can leave a message back at the Metrics page, or use the master checklist of Analytix Services.  Or call directly anytime, at (603) 643-6430.

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