We use Bakshi, Kapadia, and Madan (2003) methodology to measure option-implied ex ante skewness of the underlying stocks’ risk-neutral returns distribution. We find that the subsequent month return of a low skewness quintile exceeds a high skewness quintile by approximately 1% per month. Furthermore, the coefficients on skewness in Fama-MacBeth cross-sectional regressions are negative and statistically significant even after controlling for firm-characteristic variables that are known to forecast stock returns. Specifically, the cross-sectional stock return predictability of skewness is only significant during periods of low market return and high investor sentiment. In addition, we find that predictive power of skewness is mainly caused by market state rather than sentiment. Our findings suggest that investors consider high option-implied skewness stocks as lottery-like stocks.
Keywords: Option-implied skewness, Cross-sectional return predictability, Skewness preference
JEL classification: G11, G12, G14
학회소식
[2016년 제 4차] Is Stock Return Predictability of Option-implied Sk
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2016-12-21
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