Expected skewness and momentum

Martin Weber, Tobias Regele and Heiko Jacobs

No 11455, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Motivated by the time-series insights of Daniel and Moskowitz (2016), we investigate the link between expected skewness and momentum in the cross-section. The alpha of skewness-enhanced (-weakened) momentum is about twice (half) as large as the traditional alpha. These findings are driven by the short leg. Portfolio sorts, Fama-MacBeth regressions, and the market reaction to earnings announcements suggest that expected skewness is an important determinant of momentum. Due to the simplicity of the approach, its economic magnitude, its existence among large stocks, and the success of risk management, the results are difficult to reconcile with the efficient market hypothesis.

Keywords: Momentum; Skewness; Market efficiency; Return predictability; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (10)

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Working Paper: Expected Skewness and Momentum (2015)
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