Expected Skewness and Momentum

43 Pages Posted: 30 Aug 2016

See all articles by Tobias Regele

Tobias Regele

Allianz SE - Allianz Global Investors Europe

Martin Weber

University of Mannheim - Department of Banking and Finance

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: behavioral finance, Market Efficiency, Momentum, return predictability, Skewness

JEL Classification: G12, G14

Suggested Citation

Regele, Tobias and Weber, Martin, Expected Skewness and Momentum (August 2016). CEPR Discussion Paper No. DP11455, Available at SSRN: https://ssrn.com/abstract=2831959

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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