Investing Research Articles

Can investors amplify stock return momentum by screening past winners and losers based on return skewness? In their April 2015 paper entitled “Expected Skewness and Momentum”, Heiko Jacobs, Tobias Regele and Martin Webee explore the interaction of expected stock return skewness and momentum. They measure expected skewness as maximum daily return over the preceding month, which predicts future skewness… Keep Reading

Does the third moment (skewness) of commodity futures return distributions predict subsequent returns? In the October 2015 version of their paper entitled “Commodities as Lotteries: Skewness and the Returns of Commodity Futures”, Adrian Fernandez-Perez, Bart Frijns, Ana-Maria Fuertes and Joelle Miffre examine the relationship between skewness and future returns in commodity futures markets. They calculate futures series returns as the difference… Keep Reading

Does retail investor preference for stocks with skewed return distributions explain stock return anomalies? In their April 2018 paper entitled “Skewness Preference and Market Anomalies”, Alok Kumar, Mehrshad Motahari and Richard Taffler investigate whether investor preference for positively-skewed payoffs is a common driver of mispricing as indicated by a wide range of market anomalies. They each month… Keep Reading

Does return distribution skewness predict relative performance of assets across asset classes? In their December 2019 paper entitled “Cross-Asset Skew”, Nick Baltas and Gabriel Salinas investigate realized skewness as a relative return predictor within and across four asset classes (equity indexes, government bonds, currencies and commodities). Specifically, at the end of each month, they: For… Keep Reading

Many studies rely on the first moment (mean) of historical asset return distributions and/or the second moment (variance or standard deviation) to predict future returns. Are the third (skewness, indicating left-right tail asymmetry) and fourth (kurtosis, indicating fat-tailedness) moments of return distributions useful for predicting returns? In the July 2011 update of their paper  entitled “Do Realized… Keep Reading

Can investors discriminate between lucky and skillful equity fund managers by examining the distribution of returns across fund holdings? In the September 2010 preliminary draft of their paper entitled “Home-Run Sluggers vs. Contact Hitters: Stock Performance Distribution inside Mutual Funds and Fund Managers’ Stock Picking Ability”, Peter Chung and Thomas Kim relate the skewness of… Keep Reading

Can investors exploit greed among naive traders by selling them the most lottery-like equity options? In the March 2011 version of their paper entitled “Stock Options as Lotteries”, Brian Boyer and Keith Vorkink investigate the relationship between skewness of expected returns (a measure of prospects for extreme payouts, a proxy for “lotteryness”) and actual future… Keep Reading

Do low-volatility strategies work for all stocks? In their April 2015 paper entitled “Low Risk Anomalies?”, Paul Schneider, Christian Wagner and Josef Zechner examine relationships between low-beta/low-volatility stock anomalies and implied stock return skewness. They compute ex-ante (implied) skewness for each stock via a portfolio of associated options that is long (short) out-of-the-money calls (puts). The more investors are… Keep Reading

Is there a more precise way to measure the premium available to investors willing to bear volatility risk than overall return variance? In their January 2015 paper entitled “Downside Variance Risk Premium”, Bruno Feunou, Mohammad Jahan-Parvar and Cedric Okou investigate the usefulness of  (1) decomposing the variance risk premium (the difference between option-implied and realized variance)… Keep Reading

Do dual-sorts of country stock market predictive factors add value to single-sorts? In the July 2015 version of his paper entitled “Combining Equity Country Selection Strategies” Adam Zaremba first re-examines earnings-price ratio (E/P), momentum (return from 12 months ago to one month ago), skewness (based on the last 24 monthly returns) and turnover ratio (average monthly turnover for the… Keep Reading