Skewness Sentiment and Market Anomalies

Alok Kumar (), Mehrshad Motahari () and Richard J. Taffler ()
Additional contact information
Alok Kumar: Herbert Business School, University of Miami, Coral Gables, Florida 33146
Mehrshad Motahari: Bayes Business School, City, University of London, London EC1Y 8TZ, United Kingdom
Richard J. Taffler: Warwick Business School, University of Warwick, Coventry CV4 7AL, United Kingdom

Management Science, 2024, vol. 70, issue 7, 4328-4356

Abstract: This study demonstrates that skewness preference of investors is an important driver of various market anomalies. Using a combined measure of mispricing based on 11 prominent anomaly strategies, we show that return predictability associated with the mispricing component of market anomalies is stronger among firms with higher idiosyncratic skewness. The predictability differences are driven by the higher underperformance of high-skewness firms in short anomaly portfolios. Skewness does not affect the performance of long anomaly portfolios. Portfolio holdings data from a retail brokerage firm show that investors with stronger skewness preferences assign relatively larger weights to stocks in short anomaly portfolios.

Keywords: market anomalies; skewness preference; mispricing; idiosyncratic skewness; investor sentiment (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2023.4898 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:7:p:4328-4356

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().