The Pricing of Skewness Over Different Return Horizons
89 Pages Posted: 11 Sep 2014 Last revised: 31 Oct 2022
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: Suggested Citation