Skewness in Stock Returns: Reconciling the Evidence on Firm versus Aggregate Returns

Albuquerque, Rui A.

doi:10.2139/ssrn.1622343

Abstract

References (43)

Citations (3)

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Skewness in Stock Returns: Reconciling the Evidence on Firm versus Aggregate Returns

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)

September 30, 2010

AFA 2012 Chicago Meetings Paper

Abstract:
Aggregate stock market returns display negative skewness. Firm-level stock returns display positive skewness. The large literature that tries to explain the first stylized fact ignores the second. This paper provides a unified theory that reconciles the two facts by explicitly modeling firm-level heterogeneity. I build a stationary asset pricing model of firm announcement events where firm returns display positive skewness. I then show that cross-sectional heterogeneity in firm announcement events can lead to negative skewness in aggregate returns. I provide evidence consistent with the model predictions.

Number of Pages in PDF File: 51

Keywords: Skewness, market returns, firm returns, announcement events, cross-sectional heterogeneity

JEL Classification: G12, G14, D82

working papers series

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Date posted: June 9, 2010 ; Last revised: March 16, 2011

Suggested Citation

Albuquerque, Rui A., Skewness in Stock Returns: Reconciling the Evidence on Firm versus Aggregate Returns (September 30, 2010). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1622343 or http://dx.doi.org/10.2139/ssrn.1622343

Contact Information

Rui A. Albuquerque (Contact Author) Boston University - School of Management ( email ) 595 Commonwealth Avenue Boston, MA 02215 United States HOME PAGE: http://people.bu.edu/ralbuque/
Católica-Lisbon School of Business and Economics ( email ) Caminho da Palma de Cima Lisbon, 1649-023 Portugal
Centre for Economic Policy Research (CEPR) 77 Bastwick Street London, EC1V 3PZ United Kingdom
European Corporate Governance Institute (ECGI) ( email ) c/o ECARES ULB CP 114 B-1050 Brussels Belgium

Abstract

References (43)

Citations (3)

Skewness in Stock Returns: Reconciling the Evidence on Firm versus Aggregate Returns

Rui A. Albuquerque

Date posted: June 9, 2010 ; Last revised: March 16, 2011

Suggested Citation

Contact Information

Rui A. Albuquerque (Contact Author)