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

58 Pages Posted: 19 Jul 2010

See all articles by Rui A. Albuquerque

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

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

Albuquerque, Rui A., Skewness in Stock Returns: Reconciling the Evidence on Firm Versus Aggregate Returns (June 2010). CEPR Discussion Paper No. DP7896, Available at SSRN: https://ssrn.com/abstract=1640973

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

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HOME PAGE: http://sites.google.com/view/ruialbuquerque/home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

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