Skewness in Stock Returns, Periodic Cash Payouts, and Investor Heterogeneity
Rui A. Albuquerque
Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
January 15, 2010
This paper analyzes the asset pricing implications of periodic cash payouts within the context of a stationary rational expectations model with heterogeneous investors. The periodicity of cash payouts provides a natural motivation for time-varying conditional volatility in stock returns. I show that the unconditional distribution of returns is a mixture of normals distribution, which has non-trivial skewness properties. I examine how conditional volatility, trading volume and skewness in stock returns are related to information dispersion and liquidity in the stock market. The model provides a rationale for negative skewness in aggregate stock returns--while generating positive skewness in firm level returns--which is based on cross-sectional dispersion of event dates. Evidence on this prediction is also given.
Number of Pages in PDF File: 53
Keywords: Skewness, investor heterogeneity, period cash payouts, turnover
JEL Classification: G12, G14, D82working papers series
Date posted: November 17, 2009 ; Last revised: March 30, 2011
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