Skewness Expectations and Portfolio Choice
114 Pages Posted: 19 May 2022 Last revised: 14 Apr 2023
Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We provide a direct test of this prediction in a representative sample of the Dutch population. Using individual-level data on return expectations for a broad index and a single stock, we show that portfolio allocations increase with the skewness of respondents' return expectations for the respective asset, controlling for other moments of a respondents' expectations and sociodemographic information. We also show that while an individuals' expectations are correlated across assets, sociodemographics only capture very little of the substantial heterogeneity in expectations.
Keywords: stock market expectations, skewness, behavioral finance, portfolio choice
JEL Classification: D14, D84, G02, G11
Suggested Citation: Suggested Citation