Asymmetric Correlation as an Explanation for the Effect of Asset Skewness on Equity Returns

摘要

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.