The Pricing of Skewness Over Different Return Horizons

89 Pages Posted: 11 Sep 2014 Last revised: 31 Oct 2022

See all articles by Kevin Aretz

Kevin Aretz

Alliance Manchester Business School

Yakup Eser Arısoy

NEOMA Business School

Date Written: October 22, 2022

Abstract

While recent theoretical and empirical work suggests that the physical skewness of a stock’s future discrete return distribution prices stocks, it does not tell us over which return horizon(s) that physical skewness is priced. Developing a novel block bootstrap estimator that allows us to calculate realized return skewness over arbitrary horizons, we aim to identify those return horizons. In doing so, we first show that our block bootstrap estimator produces more accurate realized skewness estimates than other recent estimators do. Next, we report that the existing skewness proxies used in the empirical asset pricing literature differ in how well they predict skewness over short or long return horizons. Finally, we reveal that the skewness pricing evidence documented in the empirical asset pricing literature is mostly driven by skewness over short (and not long) return horizons.

Keywords: Asset pricing; physical skewness; realized skewness; quantile regression models

JEL Classification: G11, G12, G15

Suggested Citation

Aretz, Kevin and Arısoy, Yakup Eser, The Pricing of Skewness Over Different Return Horizons (October 22, 2022). Journal of Banking and Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=2494291 or http://dx.doi.org/10.2139/ssrn.2494291

Kevin Aretz (Contact Author)

Alliance Manchester Business School ( email )

Crawford House
Oxford Road
Manchester M13 9PL, Lancashire
United Kingdom
+44(0) 161 275 6368 (Phone)
+44(0) 161 275 4023 (Fax)

HOME PAGE: http://www.kevin-aretz.com

Yakup Eser Arısoy

NEOMA Business School ( email )

59 rue Pierre Taittinger
Reims, 51100
France

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