Growth Options as Determinants of Skewness

44 Pages Posted: 30 Jun 2013

See all articles by Luca Del Viva

Luca Del Viva

ESADE Business School

Eero Kasanen

Helsinki School of Economics

Lenos Trigeorgis

University of Cyprus - Department of Public and Business Administration; King's College London; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: June 28, 2013

Abstract

We add to the explanatory theory of skewness by showing how real options generate convexity of payoffs and skewness of returns. We show empirically that real growth options are significant, positive, and robust determinants of idiosyncratic skewness over and above previously reported determinants. Moreover, we provide evidence that the part of the expected idiosyncratic skewness that is generated by growth options has a negative return premium. These results suggest a behaviourally rational transmission mechanism from real growth options to stock returns through observable enhanced skewness and lottery type features.

Suggested Citation

Del Viva, Luca and Kasanen, Eero and Trigeorgis, Lenos, Growth Options as Determinants of Skewness (June 28, 2013). ESADE Business School Research Paper No. 247. Available at SSRN: https://ssrn.com/abstract=2286758

Luca Del Viva (Contact Author)

ESADE Business School ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

Eero Kasanen

Helsinki School of Economics ( email )

P.O. Box 1210
Department of Accounting and Finance
Helsinki 00100
Finland

Lenos Trigeorgis

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
00357 2 338762 (Phone)
00357 2 339063 (Fax)

King's College London ( email )

Strand
London, WC2R 2LS
United Kingdom

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

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