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Measuring skewness premia

Hugues Langlois

Journal of Financial Economics, 2020, vol. 135, issue 2, 399-424

Abstract: We provide a new methodology to empirically investigate the respective roles of systematic and idiosyncratic skewness in explaining expected stock returns. Using a large number of predictors, we forecast the cross-sectional ranks of systematic and idiosyncratic skewness, which are easier to predict than their actual values. Compared to other measures of ex ante systematic skewness, our forecasts create a significant spread in ex post systematic skewness. A predicted systematic skewness risk factor carries a significant and robust risk premium that ranges from 6% to 12% per year. In contrast, the role of idiosyncratic skewness in pricing stocks is less robust.

Keywords: Systematic skewness; Coskewness; Idiosyncratic skewness; Large panel regression; Forecasting (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jfineco.2019.06.002

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Handle: RePEc:eee:jfinec:v:135:y:2020:i:2:p:399-424