Profitability Skewness and Stock Return

47 Pages Posted: 17 Aug 2017

See all articles by Yuecheng Jia

Yuecheng Jia

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Shu Yan

Oklahoma State University - Stillwater - Department of Finance

Date Written: May 2017

Abstract

This paper investigates whether profitability skewness is related to expected stock return. We document significant evidence that profitability skewness positively predicts cross-sectional stock returns, opposite to the negative relation between return skewness and stock returns.

The positive return predictability is robust to alternative proxies of profitability and holds up to a year. The results cannot be explained by existing risk factors and return predictors including the level of profitability and return skewness. In addition to a behavioral explanation, the evidence is consistent with explanations in which profitability skewness is positively related to firm growth opportunity and future profitability.

Keywords: Skewness, profitability, stock return, growth option

JEL Classification: G12

Suggested Citation

Jia, Yuecheng and Yan, Shu, Profitability Skewness and Stock Return (May 2017). Available at SSRN: https://ssrn.com/abstract=3019690 or http://dx.doi.org/10.2139/ssrn.3019690

Yuecheng Jia (Contact Author)

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

Shu Yan

Oklahoma State University - Stillwater - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States

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