Skewness Dispersion and Stock Market Returns

Mykola Babiak, Jozef Baruník and Josef Kurka

Papers from arXiv.org

Abstract: Cross-sectional dispersion in firm-level realized skewness is significantly and negatively related to future stock market returns. The predictive power of skewness dispersion is robust to in-sample and out-of-sample estimation and is incremental over a broad set of existing predictors, with only a few alternatives retaining independent explanatory ability. Skewness dispersion also delivers substantial economic gains in portfolio allocation. Its forecasting power is concentrated in months with monetary policy announcements, reflecting an information-based mechanism. The empirical evidence suggests that skewness dispersion captures the gradual incorporation of macro news into prices, which is driven by variation in aggregate risk and valuation adjustments.

Date: 2026-04
New Economics Papers: this item is included in nep-fmk, nep-for and nep-mac
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