Abstract: What distribution best characterizes the time series and cross section of individual stock returns? To answer this question, we estimate the degree of cross-sectional return skewness relative to a benchmark that nests many models considered in the literature. We find that cross-sectional skewness in monthly returns far exceeds what this benchmark model predicts. However, cross-sectional skewness in long-run returns in the data is substantially below what the model predicts. We show that fat-tailed idiosyncratic events appear to be necessary to explain skewness in the data.
Publication Year: 2018
Publication Date: 2018-01-01
Language: en
Type: article
Indexed In: ['crossref']
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