Opposite Sides of a Skewed Bet: Implications and Evidence for Forecast Dispersion and Returns

77 Pages Posted: 6 Jan 2017 Last revised: 3 Nov 2018

Date Written: October 15, 2018

Abstract

I test the predictions of a new asset pricing model regarding the interaction of ex-ante return skewness and the dispersion of analysts’ earnings forecasts on a sample of U.S. stocks. I present evidence that skewness and forecast dispersion have an interactive pricing impact, that forecast dispersion has no marginal impact unless stocks exhibit ex-ante skewness, and that higher risk or risk aversion is associated with a deepening of their joint effect. The average return gap between stocks in the 5th and 95th percentiles by skewness and dispersion is 1.61% monthly (19.3% annualized). These otherwise anomalous discoveries comprise new cross-sectional features of expected stock returns.

Keywords: ex-ante skewness, analyst forecast dispersion, investor beliefs, microstructure influences in asset pricing

JEL Classification: G12, D53, D82

Suggested Citation

Goulding, Christian L., Opposite Sides of a Skewed Bet: Implications and Evidence for Forecast Dispersion and Returns (October 15, 2018). Available at SSRN: https://ssrn.com/abstract=2893833 or http://dx.doi.org/10.2139/ssrn.2893833

Christian L. Goulding (Contact Author)

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

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