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File name: SSRN-id1413300. ; Size: 451K
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Expected Idiosyncratic Skewness
Brian H. Boyer
Brigham Young University - J. Willard and Alice S. Marriott School of Management
Todd Mitton
Brigham Young University - J. Willard and Alice S. Marriott School of Management
Keith Vorkink
Brigham Young University - J. Willard and Alice S. Marriott School of Management
March 11, 2009
Abstract:
We test the prediction of recent theories that stocks with high idiosyncratic skewness should have low expected returns. Because lagged skewness alone does not adequately forecast skewness, we estimate a cross-sectional model of expected skewness that uses additional predictive variables. Consistent with recent theories, we find that expected idiosyncratic skewness and returns are negatively correlated. Specifically, the Fama-French alpha of a low-expected-skewness quintile exceeds the alpha of a high-expected-skewness quintile by 1.00% per month. Furthermore, the coefficients on expected skewness in Fama-MacBeth cross-sectional regressions are negative and significant. In addition, we find that expected skewness helps explain the phenomenon that stocks with high idiosyncratic volatility have low expected returns.
Number of Pages in PDF File: 54
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Date posted: February 4, 2008
; Last revised: May 17, 2011
Suggested CitationBoyer, Brian H., Mitton, Todd and Vorkink, Keith, Expected Idiosyncratic Skewness (March 11, 2009). Available at SSRN: http://ssrn.com/abstract=1089071 or http://dx.doi.org/10.2139/ssrn.1089071
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