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Skewness in Stock Returns:Reconciling the Evidence on Firm versus Aggregate Returns

  • Albuquerque, Rui

Aggregate stock market returns display negative skewness. Firm-level stock returns display positive skewness. The large literature that tries to explain the first stylized fact ignores the second. This paper provides a unified theory that reconciles the two facts. I build a stationary asset pricing model of firm announcement events where firm returns display positive skewness. I then show that cross-sectional heterogeneity in firm announcement events can lead to negative skewness in aggregate returns. I provide evidence consistent with the model predictions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7896.

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Date of creation: Jun 2010
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Handle: RePEc:cpr:ceprdp:7896
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  1. Haas, Markus & Mittnik, Stefan & Paolella, Marc S., 2002. "Mixed normal conditional heteroskedasticity," CFS Working Paper Series 2002/10, Center for Financial Studies (CFS).
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