Skewness in Stock Returns: Reconciling the Evidence on Firm Versus Aggregate Returns
58 Pages Posted: 19 Jul 2010
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Skewness in Stock Returns: Reconciling the Evidence on Firm versus Aggregate Returns
Skewness in Stock Returns: Reconciling the Evidence on Firm Versus Aggregate Returns
Date Written: June 2010
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: announcement events, crosssectionalheterogeneity, firm returns, market returns, Skewness
JEL Classification: D82, G12, G14
Suggested Citation: Suggested Citation
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