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Asymmetric Correlation as an Explanation for the Effect of Asset Skewness on Equity Returns
Author(s) -
Chung Y. Peter,
Kim Thomas S.
Publication year - 2017
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12188
Subject(s) - skewness , econometrics , explanatory power , economics , equity (law) , portfolio , correlation , stock (firearms) , asset allocation , financial economics , mathematics , physics , geography , geometry , archaeology , quantum mechanics , political science , law
Assets with asymmetric correlation tend to cause portfolios to have negative skewness. We develop measures of asymmetric correlation based on portfolio skewness. We find that asymmetric correlation is better measured with the skewness of smaller portfolios. The skewness of individual‐stock returns has the most significant and consistent explanatory power for stock returns, indicating that asymmetric correlation is generated at the asset level of individual firms.