Journal of Financial Economics

volume  134, Issue 1, October 2019, Pages 29-47

Average Skewness Matters

Eric Jondeau^a,b,∗, Qunzi Zhang^c, Xiaoneng Zhu^d,e  

^a University of Lausanne, Faculty of Business and Economics, 1015 Lausanne, Switzerland

^b Swiss Finance Institute, Boulevard du Pont-d’ Arve 40, 1205 Gen`eve, Switzerland

^c Shandong University, School of Economics, Jinan, Shandong, P.R. China

^d Shanghai University of Finance and Economics, School of Finance, Shanghai, P.R. China

^e Shanghai Institute of International Finance and Economics, Shanghai, P.R. China

Average skewness, which is the average of monthly skewness values across firms, performs well at predicting future market returns. This prediction still holds after controlling for the size or liquidity of the firms or for current business cycle conditions. Also, average skewness compares favorably with other economic and financial predictors of subsequent market returns. The asset allocation exercise based on predictive regressions also shows that average skewness generates superior performance.