DP7573 Skewness in Stock Returns, Periodic Cash Payouts, and Investor Heterogeneity

Author(s): Rui Albuquerque
Publication Date: November 2009
Keyword(s): investor heterogeneity, periodic cash payouts, Skewness, turnover
JEL(s): G12, G14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7573

This paper analyzes the asset pricing implications of periodic cash payouts within the context of a stationary rational expectations model with heterogeneous investors. The periodicity of cash payouts provides a natural motivation for time-varying conditional volatility in stock returns. I show that the unconditional distribution of returns is a mixture of normals distribution, which has non-trivial skewness properties. I examine how conditional volatility, trading volume and skewness in stock returns are related to information dispersion and liquidity in the stock market. The model provides a rationale for why firm returns have positive skewness while market returns have negative skewness.