Expected Idiosyncratic Skewness

54 Pages Posted: 4 Feb 2008 Last revised: 17 May 2011

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

Date Written: 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.

Suggested Citation

Boyer, Brian H. and Mitton, Todd and Vorkink, Keith, Expected Idiosyncratic Skewness (March 11, 2009). Available at SSRN: https://ssrn.com/abstract=1089071 or http://dx.doi.org/10.2139/ssrn.1089071

Brian H. Boyer

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States

Todd Mitton

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States
801-422-1763 (Phone)

Keith Vorkink (Contact Author)

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States

Paper statistics

Downloads
1,208
Rank
12,564
Abstract Views
4,183