Measuring skewness premia
Journal of Financial Economics, 2020, vol. 135, issue 2, 399-424
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:135:y:2020:i:2:p:399-424
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