Skewness in Stock Returns:Reconciling the Evidence on Firm versus Aggregate Returns

Rui Albuquerque

No 7896, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Aggregate stock market returns display negative skewness. Firm-level stock returns display positive skewness. The large literature that tries to explain the first stylized fact ignores the second. This paper provides a unified theory that reconciles the two facts. I build a stationary asset pricing model of firm announcement events where firm returns display positive skewness. I then show that cross-sectional heterogeneity in firm announcement events can lead to negative skewness in aggregate returns. I provide evidence consistent with the model predictions.

Keywords: Skewness; Market returns; Firm returns; Announcement events; Crosssectional heterogeneity (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Date: 2010-06
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Skewness in Stock Returns: Reconciling the Evidence on Firm Versus Aggregate Returns (2012)
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