Forecasting Asymmetries in Aggregate Stock Market Returns: Evidence from Conditional Skewness

30 Pages Posted: 26 Apr 2005

See all articles by C. James Hueng

C. James Hueng

Western Michigan University - Department of Economics

James McDonald

Brigham Young University

Abstract

This paper provides a time-series test for the Differences-of-Opinion theory proposed by Hong and Stein (2003) in the aggregate market, thus extending Chen, Hong, and Stein's (2001) cross-sectional test for this theory across individual stocks. An autoregressive conditional density model with a skewed-t distribution is used to estimate the effects of past trading volume on return asymmetry. Using NYSE and AMEX data from 1962 to 2000, we find that the prediction of the Hong-Stein model that negative skewness will be most pronounced under high trading volume conditions is not supported in our time-series analysis with market data.

Keywords: Differences of opinion, asymmetry, skewed-t distribution, autoregressive conditional density models

JEL Classification: C51, G12

Suggested Citation

Hueng, C. James and McDonald, James B., Forecasting Asymmetries in Aggregate Stock Market Returns: Evidence from Conditional Skewness. Available at SSRN: https://ssrn.com/abstract=707022

C. James Hueng (Contact Author)

Western Michigan University - Department of Economics ( email )

Kalamazoo, MI 49008
United States

James B. McDonald

Brigham Young University ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States
801-378-3463 (Phone)

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