Riccardo Faini CEIS Seminars
Adam Farago (University of Gothenburg)

Long-Horizon Stock Returns Are Positively Skewed

Riccardo Faini CEIS Seminars
When

Friday 30 April 2021 h. 16:00-17:00

Where

CEIS Tor Vergata – TEAMS Webinar
Make your registation here no later than Thursday and you will receive the link

Description

Adam Farago (University of Gothenburg)

At long horizons, multiplicative compounding induces strong-to-extreme positive skewness into stock returns; the magnitude of the effect is primarily determined by single-period volatility. Consequently, at horizons greater than five years, returns –individual or portfolio– will be positively skewed under reasonable parametrizations. From an investor perspective, the strong positive skewness implies that the mean compound return will serve as a poor guide for typical long-horizon outcomes. Moreover, the large effects of compounding on higher-order moments are shown to affect the validity of Taylor expansions used to approximate preferences for skewness, when applied to returns of annual or longer horizons.

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Contacts

Responsabile Scientifico
Marianna Brunetti, Furio Camillo Rosati

Organizzazione
Barbara Piazzi
06-72595601
piazzi@ceis.uniroma2.it