Working Paper: CEPR ID: DP7896
Authors: Rui Albuquerque
Abstract: Aggregate stock market returns display negative skewness. Firm-level stock returnsdisplay positive skewness. The large literature that tries to explain the first stylizedfact ignores the second. This paper provides a unified theory that reconciles the twofacts. I build a stationary asset pricing model of firm announcement events where firmreturns display positive skewness. I then show that cross-sectional heterogeneity in firmannouncement events can lead to negative skewness in aggregate returns. I provide evidenceconsistent with the model predictions.
Keywords: announcement events; cross-sectional heterogeneity; firm returns; market returns; skewness
JEL Codes: D82; G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive skewness in firm-level returns (C46) | negative skewness in aggregate returns (C46) |
| timing of cash payout and earnings announcement events (G35) | conditional volatility and mean returns of stocks (C58) |
| cross-sectional heterogeneity in timing of firm announcement events (G14) | negative skewness in aggregate returns (C46) |
| low returns for one firm coinciding with high volatility in others (G17) | negative coskewness in market portfolio (C10) |
| firm-level events (L29) | market outcomes (P42) |