Skewness Expectations and Portfolio Choice

81 Pages Posted: 18 Jul 2016 Last revised: 5 May 2020

See all articles by Tilman H. Drerup

Tilman H. Drerup

University of Bonn

Matthias Wibral

Maastricht University, School of Business and Economics; IZA Institute of Labor Economics

Date Written: March 28, 2020

Abstract

Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We provide a direct test of this prediction in a representative sample of the Dutch population. Using individual-level data on return expectations for a broad index and a single stock, we show that portfolio allocations increase with the skewness of respondents' return expectations for the respective asset, controlling for other moments of a respondent's expectations and a host of sociodemographic information. We also show that while an individual's expectations are correlated across assets, sociodemographics only capture very little of the substantial heterogeneity in expectations.

Keywords: Stock Market Expectations, Skewness, Portfolio Choice, Behavioral Finance

JEL Classification: G02, G11

Suggested Citation

Drerup, Tilman H. and Wibral, Matthias, Skewness Expectations and Portfolio Choice (March 28, 2020). Available at SSRN: https://ssrn.com/abstract=2810940 or http://dx.doi.org/10.2139/ssrn.2810940

Tilman H. Drerup (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Matthias Wibral

Maastricht University, School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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