Cross-Sectional Skewness

Oh, Sangmin; Wachter, Jessica A.

doi:10.2139/ssrn.3079715

Cross-Sectional Skewness

35 Pages Posted: 5 Dec 2017 Last revised: 20 Jun 2019

See all articles by Sangmin Oh

Sangmin Oh

University of Chicago - Booth School of Business

Jessica A. Wachter

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: June 18, 2019

Abstract

This paper evaluates skewness in the cross-section of stock returns in light of predictions from a well-known class of models. Cross-sectional skewness in monthly returns far exceeds what the standard lognormal model of returns would predict. In spite of the fact that cross-sectional skewness is positive, aggregate market skewness is negative. We present a model that accounts for both of these facts. This model also exhibits long-horizon skewness through the mechanism of nonstationary firm shares.

Keywords: long-term returns, idiosyncratic risk, power laws, invariance

JEL Classification: G11, G12

Suggested Citation: Suggested Citation

Oh, Sangmin and Wachter, Jessica A., Cross-Sectional Skewness (June 18, 2019). Available at SSRN: https://ssrn.com/abstract=3079715 or http://dx.doi.org/10.2139/ssrn.3079715