Average Skewness Matters!

49 Pages Posted: 12 Nov 2015 Last revised: 7 Dec 2018

See all articles by Eric Jondeau

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Qunzi Zhang

Shandong University

Xiaoneng Zhu

Shanghai University of Finance and Economics

Date Written: February 25, 2018

Abstract

Average skewness, which is defined as the average of monthly skewness values across firms, performs well at predicting future market returns. This result still holds after controlling for the size or liquidity of the firms or for current business cycle conditions. We also find that average skewness compares favorably with other economic and financial predictors of subsequent market returns. We consider two out-of-sample allocation exercises, one based on predictive regressions and the other based on the sign of the variable. In both cases, average skewness generates superior performance, in particular when it is introduced in conjunction with the current market return.

Keywords: return predictability, average skewness, idiosyncratic skewness

JEL Classification: G11, G12, G14, G17

Suggested Citation

Jondeau, Eric and Zhang, Qunzi and Zhu, Xiaoneng, Average Skewness Matters! (February 25, 2018). Swiss Finance Institute Research Paper No. 15-47. Available at SSRN: https://ssrn.com/abstract=2689612 or http://dx.doi.org/10.2139/ssrn.2689612

Eric Jondeau (Contact Author)

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://www.hec.unil.ch/ejondeau/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Qunzi Zhang

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
China

HOME PAGE: http://www.econ.sdu.edu.cn/tree/content.php?id=52869

Xiaoneng Zhu

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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