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| Title: | Conditional Skewness of Aggregate Market Returns |
| Authors: | Charoenrook, Anchada
Daouk, Hazem |
| Authors (Email): | Daouk, Hazem (hd35@cornell.edu) |
| Keywords: | Conditional skewness
Conditional Volatility
Predicting Skewness
Aggregate
market returns
International finance |
| JEL Codes: | G12
C1 |
| Issue Date: | 2009-06-16 |
| Series/Report no.: | Working Paper
WP 2009-22 |
| Abstract: | The skewness of the conditional return distribution plays a significant role in
financial theory and practice. This paper examines whether conditional skewness of
daily aggregate market returns is predictable and investigates the economic
mechanisms underlying this predictability. In both developed and emerging markets,
there is strong evidence that lagged returns predict skewness; returns are more
negatively skewed following an increase in stock prices and returns are more
positively skewed following a decrease in stock prices. The empirical evidence shows
that the traditional explanations such as the leverage effect, the volatility feedback
effect, the stock bubble model (Blanchard and Watson, 1982), and the fluctuating
uncertainty theory (Veronesi, 1999) are not driving the predictability of conditional
skewness at the market level. The relation between skewness and lagged returns is
more consistent with the Cao, Coval, and Hirshleifer (2002) model. Our findings
have implications for future theoretical and empirical models of time-varying market
return distributions, optimal asset allocation, and risk management. |
| URI: | http://purl.umn.edu/51181 |
| Institution/Association: | Cornell University>Department of Applied Economics and Management>Working Papers |
| Total Pages: | 34 |
| Collections: | Working Papers
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Files in This Item:
| File |
Description |
Size | Format |
|---|
| WP Daouk 2009-22 Charoenrook & Daouk-1.pdf | | 634Kb | PDF | View/Open |
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