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Co-skewness across Return Horizons

Author

Listed:
  • Thomas Conlon

    (Smurfit Graduate Business School, University College Dublin)

  • John Cotter

    (Smurfit Graduate Business School, University College Dublin)

  • Chenglu Jin

    (School of Finance, Zhejiang University of Finance and Economics)

Abstract

In this paper, the impact of investment horizon on asset co-skewness is examined both empirically and theoretically. We detail a strong horizon-based estimation bias for co-skewness. An asset that has positive co-skewness in one horizon may have negative co-skewness in another. This phenomenon is particularly evident for small-capitalization stocks. We propose a theoretical model to estimate long-horizon co-skewness using the shortest horizon data, which emphasizes the role of adjustment delays in pricing market-wide information among securities. Moreover, in the absence of intertemporal correlation, we show that co-skewness remains horizon-dependent. Our findings are robust to alternative specifications and have strong implications for asset pricing or portfolio allocation with co-skewness.

Suggested Citation

  • Thomas Conlon & John Cotter & Chenglu Jin, 2019. "Co-skewness across Return Horizons," Working Papers 201910, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:201910
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Co-skewness; The Horizon Effect; Intertemporal Correlation; Asset Pricing;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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