Skewness Expectations and Portfolio Choice

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 individuallevel 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 respondent’s expectations and sociodemographic information. We also show that while an individual’s expectations are correlated across assets, sociodemographics only capture very little of the substantial heterogeneity in expectations.