Asymmetries in stock returns: Statistical tests and economic evaluation

We provide a model-free test for asymmetric correlations in which stocks move more often with the market when the market goes down than when it goes up, and also provide such tests for asymmetric betas and covariances. When stocks are sorted by size, book-to-market, and momentum, we find strong evid...

Full description

Saved in:
Bibliographic Details
Main Authors: HONG, Yongmiao, TU, Jun, ZHOU, Guofu
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2007
Subjects:
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/4574
https://ink.library.smu.edu.sg/context/lkcsb_research/article/5573/viewcontent/Asymmetries_in_stock_returns_sv.pdf
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Singapore Management University
Language: English
Description
Summary:We provide a model-free test for asymmetric correlations in which stocks move more often with the market when the market goes down than when it goes up, and also provide such tests for asymmetric betas and covariances. When stocks are sorted by size, book-to-market, and momentum, we find strong evidence of asymmetries for both size and momentum portfolios, but no evidence for book-to-market portfolios. Moreover, we evaluate the economic significance of incorporating asymmetries into investment decisions, and find that they can be of substantial economic importance for an investor with a disappointment aversion (DA) preference as described by Ang, Bekaert, and Liu (2005).