Idiosyncratic Moments and theCross-Section of Stock Returns in Brazil
We use Brazilian data to compute monthly idiosyncratic moments (expected skewness,realized skewness, and realized volatility) for equity returns and assess whether theyare informative for the cross-section of future stock returns. Since there is evidencethat lagged skewness alone does not adequately...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Estado: | Versión publicada |
| Fecha de publicación: | 2016 |
| País: | Brasil |
| Institución: | Instituição de Ensino Superior e de Pesquisa (INSPER) |
| Repositorio: | Repositório Institucional da INSPER |
| Idioma: | portugués |
| OAI Identifier: | oai:repositorio.insper.edu.br:11224/5034 |
| Acceso en línea: | https://repositorio.insper.edu.br/handle/11224/5034 https://doi.org/10.12660/bre.v99n992016.18544 |
| Access Level: | acceso abierto |
| Palabra clave: | Idiosyncratic skewnes Idiosyncratic volatility Portfolio selection |
| Sumario: | We use Brazilian data to compute monthly idiosyncratic moments (expected skewness,realized skewness, and realized volatility) for equity returns and assess whether theyare informative for the cross-section of future stock returns. Since there is evidencethat lagged skewness alone does not adequately forecast skewness, we estimate a cross-sectional model of expected skewness that uses additional predictive variables. Then,we sort stocks each month according to their idiosyncratic moments, forming quintileportfolios. We find a negative relationship between higher idiosyncratic moments andnext-month stock returns. The trading strategy that sells stocks in the top quintile ofexpected skewness and buys stocks in the bottom quintile generates a significant monthlyreturn of about 120 basis points. Our results are robust across sample periods, portfolioweightings, and to Fama and French (1993)’s risk adjustment factors. Finally, we identifya return reversal of stocks with high idiosyncratic skewness. Specifically, stocks withhigh idiosyncratic skewness have high contemporaneous returns. That tends to reverse,resulting in negative abnormal returns in the following month. |
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