Expected Skewness and Momentum

40 Pages Posted: 29 Apr 2015 Last revised: 3 Aug 2016

See all articles by Heiko Jacobs

Heiko Jacobs

University of Duisburg-Essen, Campus Essen

Tobias Regele

Allianz SE - Allianz Global Investors Europe

Martin Weber

University of Mannheim - Department of Banking and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: August 2016

Abstract

Motivated by the time-series insights of Daniel and Moskowitz (2016), we investigate the link between expected skewness and momentum in the cross-section. The alpha of skewness-enhanced (-weakened) momentum is about twice (half) as large as the traditional alpha. These findings are driven by the short leg. Portfolio sorts, Fama-MacBeth regressions, and the market reaction to earnings announcements suggest that expected skewness is an important determinant of momentum. Due to the simplicity of the approach, its economic magnitude, its existence among large stocks, and the success of risk management, the results are difficult to reconcile with the efficient market hypothesis.

Keywords: Momentum, skewness, market efficiency, return predictability, behavioral finance

JEL Classification: G12, G14

Suggested Citation

Jacobs, Heiko and Regele, Tobias and Weber, Martin, Expected Skewness and Momentum (August 2016). Available at SSRN: https://ssrn.com/abstract=2600014 or http://dx.doi.org/10.2139/ssrn.2600014

Heiko Jacobs

University of Duisburg-Essen, Campus Essen ( email )

Universitätsstr. 9
Essen, 45141
Germany
+49-(0)621-181-3453 (Phone)
+49-(0)621-181-1534 (Fax)

HOME PAGE: http://sites.google.com/site/heikojacobsfinance/

Tobias Regele (Contact Author)

Allianz SE - Allianz Global Investors Europe

Bockenheimer Landstrasse 42-44
Frankfurt am Main, 60323
Germany

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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