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    Time-Varying Skewness in Stock Returns: An Information-Based Explanation

    137699_20735_pub21124.pdf (1.594Mb)
    Access Status
    Open access
    Authors
    Lakshman, Alles
    Date
    2004
    Type
    Journal Article
    
    Metadata
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    Citation
    Lakshman, Alles. 2004. Time-Varying Skewness in Stock Returns: An Information-Based Explanation. Quarterly Journal of Business and Economics. 43 (1&2): pp. 45-55.
    Source Title
    Quarterly Journal of Business and Economics
    ISSN
    0747-5535
    Faculty
    Curtin Business School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/18897
    Collection
    • Curtin Research Publications
    Abstract

    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.

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