Skewness a Pervasive Return Predictor?

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:

1. For each asset, measure skewness using daily returns over the last 12 months.
2. Within each asset class, rank assets by skewness and reform a skewness portfolio that is long rank-weighted assets with relatively low (most negative) skewnesses and short those with relatively high (least negative or positive) skewnesses, with equal dollars allocated to the long and short sides.
3. Scale each asset class skewness portfolio to full-sample volatility of 10%, and reform a Global Skewness Factor (GSF) portfolio that equally weights these scaled asset class portfolios.

Using daily returns for 19 equity index futures, 9 government bond futures, 9 currency forwards and 24 commodity futures series, along with monthly value, momentum and carry factor returns, during January 1990 through December 2017, they find that: (more…)