Expected skewness and momentum
Tobias Regele and
No 11455, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Motivated by the time-series insights of Daniel and Moskowitz (2016), we investigate the link between expected skewness and momentum in the cross-section. The alpha of skewness-enhanced (-weakened) momentum is about twice (half) as large as the traditional alpha. These findings are driven by the short leg. Portfolio sorts, Fama-MacBeth regressions, and the market reaction to earnings announcements suggest that expected skewness is an important determinant of momentum. Due to the simplicity of the approach, its economic magnitude, its existence among large stocks, and the success of risk management, the results are difficult to reconcile with the efficient market hypothesis.
Keywords: behavioral finance; Market Efficiency; Momentum; return predictability; Skewness (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
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Working Paper: Expected Skewness and Momentum (2015)
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