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Measuring skewness premia

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  • Langlois, Hugues

Abstract

We provide a new methodology to empirically investigate the respective roles of systematic and idiosyncratic skewness in explaining expected stock returns. Using a large number of predictors, we forecast the cross-sectional ranks of systematic and idiosyncratic skewness, which are easier to predict than their actual values. Compared to other measures of ex ante systematic skewness, our forecasts create a significant spread in ex post systematic skewness. A predicted systematic skewness risk factor carries a significant and robust risk premium that ranges from 6% to 12% per year. In contrast, the role of idiosyncratic skewness in pricing stocks is less robust.

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  • Langlois, Hugues, 2020. "Measuring skewness premia," Journal of Financial Economics, Elsevier, vol. 135(2), pages 399-424.
    • Handle: RePEc:eee:jfinec:v:135:y:2020:i:2:p:399-424
    DOI: 10.1016/j.jfineco.2019.06.002
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    Keywords

    Systematic skewness; Coskewness; Idiosyncratic skewness; Large panel regression; Forecasting;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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