Keywords
idiosyncratic skewness, expected returns, cross-sectional regression
Abstract
We test the prediction of recent theories that stocks with high idiosyncratic skewness should have low expected returns. Because lagged skewness alone does not adequately forecast skewness, we estimate a cross-sectional model of expected skewness that uses additional predictive variables. Consistent with recent theories, we find that expected idiosyncratic skewness and returns are negatively correlated. Specifically, the Fama-French alpha of a low-expected-skewness quintile exceeds the alpha of a high-expected-skewness quintile by 1.00% per month. Furthermore, the coefficients on expected skewness in Fama-MacBeth cross-sectional regressions are negative and significant. In addition, we find that expected skewness helps explain the phenomenon that stocks with high idiosyncratic volatility have low expected returns. (JEL D03, G11, G12)
Original Publication Citation
Expected Idiosyncratic Skewness (with Todd Mitton and Keith Vorkink) 2010, Review of Financial Studies, 23, 169-202.
BYU ScholarsArchive Citation
Boyer, Brian H.; Mitton, Todd; and Vorkink, Keith, "Expected Idiosyncratic Skewness" (2009). Faculty Publications. 8929.
https://scholarsarchive.byu.edu/facpub/8929
Document Type
Peer-Reviewed Article
Publication Date
2009
Publisher
Review of Financial Studies
Language
English
College
Marriott School of Business
Department
Finance
Copyright Use Information
https://lib.byu.edu/about/copyright/