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Title: Skewness in Stock Returns:Reconciling the Evidence on Firm versus Aggregate Returns

Author(s): Rui Albuquerque

Publication Date: June 2010

Keyword(s): announcement events, crosssectional heterogeneity, firm returns, market returns and Skewness

Programme Area(s): Financial Economics

Abstract: Aggregate stock market returns display negative skewness. Firm-level stock returns display positive skewness. The large literature that tries to explain the first stylized fact ignores the second. This paper provides a unified theory that reconciles the two facts. I build a stationary asset pricing model of firm announcement events where firm returns display positive skewness. I then show that cross-sectional heterogeneity in firm announcement events can lead to negative skewness in aggregate returns. I provide evidence consistent with the model predictions.

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Bibliographic Reference

Albuquerque, R. 2010. 'Skewness in Stock Returns:Reconciling the Evidence on Firm versus Aggregate Returns'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7896