Discussion paper
DP7896 Skewness in Stock Returns:Reconciling the Evidence on Firm versus Aggregate Returns
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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