Time-Varying Skewness in Stock Returns: An Information-Based Explanation
MetadataShow full item record
There is evidence of regularities in the skewness of asset returns reported in the literature. The literature, however, offers no adequate explanations for these phenomena. Based on a simulation approach, we provide evidence that at least some aspects of skewness can be explained in terms of extant information-based theories in finance. Using a well-accepted model for generating asset returns, we demonstrate that when the effects of the uncertain information hypothesis and Kahneman and Tversky's prospect theory are incorporated in the return-generating process, the resulting return distributions can show negative skewness and variations of skewness with changing economic climates similar to what has been observed in empirical distributions.
Showing items related by title, author, creator and subject.
Duan, J.; Zhang, Weiqi (2014)A method for computing forward-looking market risk premium is developed in this paper. We first derive a theoretical expression that links forward-looking risk premium to investors’ risk aversion and forward looking ...
Alles, Lakshman; Murray, L. (2013)Distributional properties of emerging market returns may impact on investor ability and willingness to diversify. Investors may also place greater weighting on downside losses, compared to upside gains. Using individual ...
An example on modelling conditional higher moments using maximum entropy density with high frequency data.Chan, Felix (2007)Since the introduction of the Autoregressive Conditional Heteroscedasticity (ARCH) model of Engle (1982), the literature of modelling the conditional second moment has become increasingly popular in the last two decades. ...