Download or read book Cross sectional Skewness written by Simon Sangmin Oh and published by . This book was released on 2018 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper evaluates skewness in the cross-section of stock returns in light of predictions from a well-known class of models. Cross-sectional skewness in monthly returns far exceeds what the standard lognormal model of returns would predict. However, skewness in long-run returns substantially understates what the lognormal model would predict. Nonstationary share dynamics imply a breakdown in the distinction between market and idiosyncratic risk in the lognormal model. We present an alternative model that matches the skewness in the data and implies stationary wealth shares. In this model, idiosyncratic risk is the primary driver of growth in the economy.
Download or read book Stock Market Cross Sectional Skewness and Business Cycle Fluctuations written by Thiago R.T. Ferreira and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using U.S. data from 1926 to 2015, I show that financial skewness?a measure comparing cross-sectional upside and downside risks of the distribution of stock market returns of financial firms?is a powerful predictor of business cycle fluctuations. I then show that shocks to financial skewness are important drivers of business cycles, identifying these shocks using both vector autoregressions and a dynamic stochastic general equilibrium model. Financial skewness appears to reflect the exposure of financial firms to the economic performance of their borrowers.
Download or read book The Cross Sectional Variation of Skewness Risk Premia written by Kai Wang and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates skewness risk premia on individual stocks using synthetic skew swaps and shows that there is a considerably large variation of monthly realized skewness risk premia across a representative set of portfolios which are sorted by skewness risk premium payoffs in the prior period. It then focuses on investigating the determinants of such cross-sectional variation and documents that consumption risk does not seem to be priced with respect to skewness risk premia. The market excess return and, especially, the market variance risk premium are shown to be key risk factors that drive the cross-sectional variation of skewness risk premium payoffs. The market variance risk premium factor is significantly priced with respect to skewness risk premia even if I allow for potential model misspecification. The success of the market variance risk premium factor can be potentially explained by the very different risk exposures of skewness risk premium-based portfolios to the risk proxied by the market variance risk premium. I further show that the higher the exposure of the skewness risk premium-based portfolio to such a risk, the larger skewness risk premium payoff is required in the cross section.
Download or read book Higher Moments Matter Cross Sectional Higher Moments and the Predictability of Stock Returns written by Sebastian Stöckl and published by . This book was released on 2016 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we investigate the predictive power of cross-sectional volatility, skewness and kurtosis for future stock returns. Adding to the work of Maio (2016), who finds cross-sectional volatility to forecast a decline in the equity premium with high predictive power in-sample as well as out-of-sample, we highlight the additional role of cross-sectional skewness and cross-sectional kurtosis. Applying a principal component approach, we show that cross-sectional higher moments add to the predictive quality of cross-sectional volatility by stabilizing the predictive performance and yielding a positive trend in in-sample and out-of-sample predictive quality since the burst of the dot-com bubble. In particular, we observe cross-sectional skewness to span the predictive quality of cross-sectional volatility over short-forecasting horizons, whereas cross-sectional kurtosis significantly contributes to long-horizon forecasting of 12 months and above. Results are both statistically and economically significant.
Download or read book Preference for Positive Skewness and Expected Stock Returns written by Turan G. Bali and published by . This book was released on 2015 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the role of skewness preference in cross-sectional pricing of NYSE, AMEX, and NASDAQ stocks over the long sample period of January 1926-December 2005 as well as two subsamples. Portfolio-level analyses and the firm-level cross-sectional regressions indicate a negative and significant relation between total skewness and expected stock returns. After controlling for size, book-to-market, momentum, liquidity, and idiosyncratic volatility, the negative relation between total skewness and expected returns remains economically and statistically significant. These results hold for the NYSE stocks, after screening for size, price, and liquidity, and they are also robust across different sample periods. We decompose total skewness into idiosyncratic and systematic components and find a significantly negative relation between idiosyncratic skewness and the cross-section of expected returns, whereas there is no evidence for a significant link between systematic skewness and average stock returns.
Download or read book Priced Risk and Asymmetric Volatility in the Cross Section of Skewness written by Robert F. Engle and published by . This book was released on 2009 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the sources of skewness in aggregate risk-factors and the cross-section of stock returns. In an ICAPM setting with conditional volatility, we find theoretical time series predictions on the relationships among volatility, returns, and skewness for priced risk factors. Market returns resemble these predictions; however, size, book-to-market, and momentum factor returns show alternative behavior, leading us to conclude these factors are not priced risks. We link aggregate risk and skewness to individual stocks and find empirically that the risk aversion effect manifests in individual stock skewness. Additionally, we find several firm characteristics that explain stock skewness. Smaller firms, value firms, highly levered firms, and firms with poor credit ratings have more positive skewness.
Download or read book Empirical Asset Pricing written by Turan G. Bali and published by John Wiley & Sons. This book was released on 2016-02-26 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Download or read book Cross sectional Return Predictability written by Zhongxiang Xu and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Caught Up in the Higher Moments written by Ronald Jared DeLisle and published by . This book was released on 2010 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt: ABSTRACT: This dissertation examines if information extracted from the options markets is priced in the cross-section of equity returns and whether or not this information is a systematic risk factor. Several versions of the Intertemporal Capital Asset Pricing Model predict that changes in aggregate volatility are priced into the cross-section of stock returns. Literature confirms that changes in expected future market volatility are priced into the cross-section of stock returns. Several of these studies use the VIX Index as proxy for future market volatility, and suggest that it is a risk factor. However, prior studies do not test whether asymmetric volatility affects if firm sensitivity to changes in VIX is related to risk, or is just a characteristic uniformly affecting all firms. The first chapter of my dissertation examines the asymmetric relation of stock returns and changes in VIX. The study finds that sensitivity to VIX innovations affects returns when volatility is rising, but not when it is falling. When VIX rises this sensitivity is a priced risk factor, but when it falls there is a positive impact on all stocks irrespective of VIX loadings. The second essay of my dissertation uses the second, third, and fourth moments of the risk-neutral density extracted from options on the S & P 500 as the proxy for changes in the expected future market return distribution rather than just the VIX index. The VIX index, while easily obtained, contains limited information due to its construction. The risk-neutral moments map one-to-one to the real-world volatility smile from market options, and contain all the information in the cross-section of market option moneyness and provide a richer proxy for changes in expected future market return distribution. The analyses find that positive change in risk-neutral skewness is a risk-factor and that change in risk-neutral kurtosis is not. The evidence for change in risk-neutral volatility being a risk factor, however, is ambiguous.
Download or read book What Does the Cross Section Tell About Itself Explaining Equity Risk Premia with Stock Return Moments written by Ilan Cooper and published by . This book was released on 2019 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive a parsimonious three-factor asset pricing model (cross-sectional CAPM, CS-CAPM) in which stock return dispersion (realized cross-sectional variance of long-short equity portfolios) and stock return skewness (realized cross-sectional skewness of equity portfolios) are the driving forces in pricing cross-sectional equity risk premia. Market segmentation leads these two factors to be priced in equilibrium. The model offers a large fit for the joint cross-sectional risk premia associated with 16 prominent CAPM anomalies, with explanatory ratios above 40%. The CS-CAPM compares favorably with multifactor models widely used in the literature. The cross-sectional factors are not subsumed by traditional macro risk factors.
Download or read book Skewness in Stock Returns written by Rui Henrique Pereira Leite Albuquerque and published by . This book was released on 2010 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Does Realized Skewness Predict the Cross Section of Equity Returns written by Diego Amaya and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and study the realized moments' time-series and cross-sectional properties. We investigate if this week's realized moments are informative for the cross-section of next week's stock returns. We find a very strong negative relationship between realized skewness and next week's stock returns. A trading strategy that buys stocks in the lowest realized skewness decile and sells stocks in the highest realized skewness decile generates an average weekly return of 19 basis points with a t-statistic of 3.70. Our results on realized skewness are robust across a wide variety of implementations, sample periods, portfolio weightings, and firm characteristics, and are not captured by the Fama-French and Carhart factors. We find some evidence that the relationship between realized kurtosis and next week's stock returns is positive, but the evidence is not always robust and statistically significant. We do not find a strong relationship between realized volatility and next week's stock returns.
Download or read book Does Realized Skewness Predict the Cross section of Equity Returns written by and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Skewness Individual Investor Preference and the Cross Section of Stock Returns written by Tse-Chun Lin and published by . This book was released on 2017 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find a robust negative relation between skewness/lotter-like features, proxied by maximum return (MAX) over the last month, and future returns for stocks preferred by individual investors. This negative relation is nonexistent for the rest of stocks. We identify stocks preferred by individual investors through bundling 10 stock characteristics associated with their stock preferences. The negative relation between MAX and future return is produced by the stocks preferred by individuals that account for less than 5% of the overall market capitalization. Our results are robust to alternative definitions of MAX and lotter-like features such as total, idiosyncratic, and expected skewness.
Download or read book Skewness and Dispersion of Opinion and the Cross Section of Stock Returns written by Jinghan Meng and published by . This book was released on 2015 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that the degree of dispersion and asymmetry of analysts' earnings forecasts is related to future stock returns. When skewness is negative, future returns are decreasing in the degree of dispersion of analysts' earnings forecasts; when skewness is positive, future returns are increasing in the degree of dispersion of analysts earnings forecasts. We develop a model that incorporates dispersion and asymmetry in agents' beliefs that can account for these empirical facts.
Download or read book Analyst Forecast Skewness and Cross Section Stock Returns written by Cai Zhu and published by . This book was released on 2015 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the paper, we show a significant economic linkage between analyst EPS forecast skewness and cross section stock returns. The effect on stock return of our skewness measure is quite different from that based on skewness calculated from options or high frequency data. Literature shows that, using such skewness as a signal, trading profit is generated mostly from over-valued stocks with high positive skewness, which is consistent with Barberis and Huang (2008)'s lottery arguments. However, we find that for our analyst forecast skewness, trading profit mainly comes from those stocks with negative skewness. Long-short strategy purchasing stocks with low forecast skewness and shorting those with high forecast skewness earns annualized abnormal returns 11% with sharpe ratio 0.64. Our study suggests that negative skewness stocks tend to be undervalued (risk-adjusted returns for negative skewness stocks are significantly positive), while stocks with high positive skewness have fair prices (risk-adjusted returns for positive skewness stocks are not significant). Our empirical results are closely related with investors learning behavior and consistent with Veronesi (1999) theory. In the model, Veronesi shows that when investors cannot observe cash flow growth rate, they tend to overreact to bad news, push current stock price down, such behavior will lead to higher future stock returns. Our results also hold when using robust skewness defined as the gap between analyst EPS forecast mean and median.
Download or read book The Next Microsoft Skewness Idiosyncratic Volatility and Expected Returns written by Nishad Kapadia and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the low subsequent returns of stocks with high idiosyncratic volatility, documented by prior research. There is substantial time-series co-variation between stocks with high idiosyncratic risk. I examine an alternative measure of aggregate skewness, the cross-sectional skewness of all firms at a given point in time. Cross-sectional skewness helps explain both the common time-variation and the premium associated with firms with high idiosyncratic volatility. Sensitivity to cross-sectional skewness is also related to the underperformance of Initial Public Offerings (IPOs) and small growth stocks. IPOs only underperform if they list in times of high cross-sectional skewness. These results imply that the low returns to IPOs, small growth stocks and highly volatile stocks are a result of a preference for skewness. Finally, proxies for technological change, such as lagged patent grant growth, predict future cross-sectional skewness. This suggests an economic interpretation of cross-sectional skewness as the result of changes in industry structure brought about by shocks such as significant technological change.
