Skewness preference across countries

Prospect theory implies that assets with positively skewed returns should be traded at premium to assets with negative skewness. We hypothesize that in the integrated financial markets this concept should also hold for the entire country equity portfolios. This article examines the linkages between the country-level expected returns and past skewness. We evidence a robust negative relationship between skewness and future returns. The phenomenon is most significant within large, liquid, developed, and open stock markets. Additional sorts on skewness can improve performance of both cross-country value and momentum strategies. The study is based on the sorting and cross-sectional tests conducted within a sample of 78 country equity markets for years 1999-2014.


Issue Date:
2015
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/246154
Published in:
Business and Economic Horizons, Volume 11, Issue 2
Business and Economic Horizons
Page range:
115-130
Total Pages:
16
JEL Codes:
G11; G12; G15




 Record created 2017-04-01, last modified 2017-08-29

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