Skewness Preference Across Countries

Business and Economic Horizons, 2015, 11(2), 115-130.

16 Pages Posted: 15 May 2015 Last revised: 26 Dec 2015

See all articles by Adam Zaremba

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business

Andrzej Nowak

Poznan University of Economics

Date Written: May 14, 2015

Abstract

Prospect theory implies that assets with positively skewed returns should be traded at premium to assets with negative skewness. We hypothesize that in the integrated financial markets this concept should also hold for the entire country equity portfolios. This article examines the linkages between the country-level expected returns and past skewness. We evidence a robust negative relationship between skewness and future returns. The phenomenon is most significant within large, liquid, developed, and open stock markets. Additional sorts on skewness can improve performance of both cross-country value and momentum strategies. The study is based on the sorting and cross-sectional tests conducted within a sample of 78 country equity markets for years 1999-2014.

Keywords: skewness preference, country-level effects, inter-market effects, asset pricing, international markets, prospect theory

JEL Classification: G11, G12, G15

Suggested Citation

Zaremba, Adam and Nowak, Andrzej, Skewness Preference Across Countries (May 14, 2015). Business and Economic Horizons, 2015, 11(2), 115-130. , Available at SSRN: https://ssrn.com/abstract=2606180 or http://dx.doi.org/10.2139/ssrn.2606180

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

HOME PAGE: http://sites.google.com/view/adamzaremba

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

Andrzej Nowak

Poznan University of Economics ( email )

Poznan, 60-967
Poland

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