Skewness Swaps on Individual Stocks

62 Pages Posted: 29 Mar 2018 Last revised: 21 Nov 2020

See all articles by Paola Pederzoli

Paola Pederzoli

University of Houston - C.T. Bauer College of Business

Date Written: November 20, 2020

Abstract

This paper implements a novel model-free methodology to measure skewness risk premia in individual stocks. The methodology takes the form of a trading strategy, a skewness swap. The return on the strategy shows a significant positive skewness risk premium in individual stocks. The risk premium massively increased after the 2008/2009 financial crisis due to an increase in the price of put options in individual stocks. Part of this skewness risk premium is idiosyncratic. Frictions on short-selling, measured by high short-interest ratios and low ETF ownership, are key drivers of the idiosyncratic skewness risk premium.

Keywords: Skewness risk premium, skewness swap, financial crisis, short-selling constraints

JEL Classification: G01, G12, G13

Suggested Citation

Pederzoli, Paola, Skewness Swaps on Individual Stocks (November 20, 2020). Swiss Finance Institute Research Paper No. 18-31, Paris December 2018 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=3151975 or http://dx.doi.org/10.2139/ssrn.3151975

Paola Pederzoli (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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