Ex Ante Skewness and Expected Stock Returns
We use a sample of option prices, and the method of Bakshi, Kapadia, and Madan (2003), to estimate the ex ante higher moments of the underlying individual securities risk-neutral returns distribution. We find that individual securities volatility, skewness and kurtosis are strongly related to subsequent returns. Specifically, we find a negative relation between cross-sectional volatility and returns. We also find a significant relation between skewness and returns, with more negatively (positively) skewed returns associated with subsequent higher (lower) returns, while kurtosis is positively related to returns. To analyze the extent to which these returns relations represent compensation for risk, we use data on index options and the underlying market return to estimate the stochastic discount factor (SDF) over the 1996-2005 sample period, and allow the SDFs to include higher moments. We find evidence that, even after controlling for differences in co-moments, individual securities skewness matters. We also study how many factors span the space of SDFs retrieved from industry portfolios. We use the spanning argument to construct market implied physical densities by combining the information in the risk-neutral distribution and the SDFs. As an application we revisit the internet bubble and find little evidence that the distribution of technology stocks was positively skewed during the bubble period駃n fact, these stocks have the lowest skew, and the highest estimated Sharpe ratio, of all stocks in our sample.
Jennifer Conrad Robert F. Dittmar Eric Ghysels
Department of Finance, Kenan-Flagler Business School, University of North Carolina at Chapel Hill Department of Finance, Stephen Ross School of Business, University of Michigan, Ann Arbor, MI 48109 Department of Finance, Kenan-Flagler Business School, and Department of Economics, University of Nor
国际会议
广州
英文
1-49
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）