Idiosyncratic asymmetry in stock returns: An entropy measure

Yan Chen and Yakun Liu

Finance Research Letters, 2024, vol. 64, issue C

Abstract: This study presents an entropy-based approach for measuring the asymmetry of stock returns. To apply this approach, we use the Bootstrap method, in which our asymmetry measure exhibits a significantly enhanced ability to detect asymmetry compared with skewness. Moreover, our empirical findings reveal that stocks characterized by higher upside asymmetries, as determined by our innovative entropy measure, exhibit lower average returns across a cross-section of stocks. This finding supports the conclusions in Han et al. (2018). Conversely, when employing the three-moment skewness measure, the relationship between asymmetry and stock returns remains inconclusive in the Chinese market.

Keywords: Entropy; Asymmetry; Skewness; Cross-sectional returns (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324003477

DOI: 10.1016/j.frl.2024.105317

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