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Co-skewness across Return Horizons

Thomas Conlon (), John Cotter () and Chenglu Jin
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Chenglu Jin: School of Finance, Zhejiang University of Finance and Economics

No 201910, Working Papers from Geary Institute, University College Dublin

Abstract: In this paper, the impact of investment horizon on asset co-skewness is examined both empirically and theoretically. We detail a strong horizon-based estimation bias for co-skewness. An asset that has positive co-skewness in one horizon may have negative co-skewness in another. This phenomenon is particularly evident for small-capitalization stocks. We propose a theoretical model to estimate long-horizon co-skewness using the shortest horizon data, which emphasizes the role of adjustment delays in pricing market-wide information among securities. Moreover, in the absence of intertemporal correlation, we show that co-skewness remains horizon-dependent. Our findings are robust to alternative specifications and have strong implications for asset pricing or portfolio allocation with co-skewness.

Keywords: Co-skewness; The Horizon Effect; Intertemporal Correlation; Asset Pricing (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-07-28
New Economics Papers: this item is included in nep-fmk
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