The World Predictive Power of U.S. Equity Market Skewness
47 Pages Posted: 7 Mar 2017 Last revised: 22 Jun 2019
Date Written: April 2, 2019
This study investigates the cross-country impact of U.S. equity market skewness risk. We find that a large decrease in the U.S. market skewness significantly predicts high future returns on international equity markets. The predictability remains significant after controlling for a set of U.S. and local forecasting variables. Furthermore, we find strong predictability in an out-of-sample setting and the predictability delivers a large economic value. The U.S. market skewness also forecasts U.S. economic recessions and international market conditions, consistent with the international three-moment capital asset pricing model (three-moment CAPM) and intertemporal capital asset pricing model (ICAPM).
Keywords: Return Predictability, International Stock Markets, Skewness, Market Crash
JEL Classification: C22, C53, G11, G12, G17
Suggested Citation: Suggested Citation