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Does average skewness matter? Evidence from the Taiwanese stock market

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  • Li, Mingyi
  • Onishchenko, Olena
  • Zhao, Jing

Abstract

This paper replicates Jondeau et al. (2019) on the topic of average skewness which is the average of monthly skewness values across firms. First, we consistently reproduce their main results and validate that average skewness negatively predicts the next-month U.S. stock market returns. Second, we test the prediction on the Taiwanese stock market where retail investors dominate the trading volume and find that average skewness fails to predict the next-month market returns. Third, we extend our analysis on the Taiwanese stock market to allow for delayed effects and adopt the maximum daily return over the month (MAX) as an alternative measure of skewness. We find that the value-weighted average skewness and the average MAX are able to predict the second-next-month market returns in Taiwan.

Suggested Citation

  • Li, Mingyi & Onishchenko, Olena & Zhao, Jing, 2020. "Does average skewness matter? Evidence from the Taiwanese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x20301244
    DOI: 10.1016/j.pacfin.2020.101382
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    References listed on IDEAS

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    1. Jondeau, Eric & Zhang, Qunzi & Zhu, Xiaoneng, 2019. "Average skewness matters," Journal of Financial Economics, Elsevier, vol. 134(1), pages 29-47.
    2. Bali, Turan G. & Cakici, Nusret & Whitelaw, Robert F., 2011. "Maxing out: Stocks as lotteries and the cross-section of expected returns," Journal of Financial Economics, Elsevier, vol. 99(2), pages 427-446, February.
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    6. John M. Griffin & Patrick J. Kelly & Federico Nardari, 2010. "Do Market Efficiency Measures Yield Correct Inferences? A Comparison of Developed and Emerging Markets," Review of Financial Studies, Society for Financial Studies, vol. 23(8), pages 3225-3277, August.
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    8. Huang, Shiyang & Huang, Yulin & Lin, Tse-Chun, 2019. "Attention allocation and return co-movement: Evidence from repeated natural experiments," Journal of Financial Economics, Elsevier, vol. 132(2), pages 369-383.
    9. Todd Mitton & Keith Vorkink, 2007. "Equilibrium Underdiversification and the Preference for Skewness," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1255-1288.
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    Cited by:

    1. Tsai, Chia-Fen & Chang, Jung-Hsien & Tsai, Feng-Tse, 2021. "Lottery preferences and retail short selling," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    2. Annaert, Jan & De Ceuster, Marc & Van Cappellen, Jef, 2023. "Can average skewness really predict financial returns? The euro area case," Finance Research Letters, Elsevier, vol. 52(C).

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