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Co-skewness across Return Horizons

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  • Chenglu Jin
  • Thomas Conlon
  • John Cotter

    (Smurfit Graduate Business School, University College Dublin, Ireland, School of Finance, Zhejiang University of Finance and Economics, China, and UCD Geary Institute for Public Policy, University College Dublin)

Abstract

In this paper the impact of investment horizon on asset co-skewness is examined both empirically and theoretically. We first detail a strong horizon-based estimation bias for co-skewness. An asset that has positive co-skewness at one horizon may have negative co-skewness for others. This phenomenon is particularly evident for small-capitalization stocks. We then propose a theoretical model to estimate long-horizon co-skewness using data observed at the shortest horizon, which emphasizes the role of adjustment delays in the pricing of market-wide information among securities. Co-skewness is only found to be priced in the cross-section of stock returns for a small range of short-horizons, calling into question the universal validity of the three-moment model.

Suggested Citation

  • Chenglu Jin & Thomas Conlon & John Cotter, 2022. "Co-skewness across Return Horizons," Working Papers 202210, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:202210
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    More about this item

    Keywords

    Co-skewness; The Horizon Effect; Intertemporal Correlation; Asset Pricing;
    All these keywords.

    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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