Is idiosyncratic skew ness priced

Abstract

This paper discusses,empirically,on relationship between expected return and expected idiosyncratic skewness in Chinese A-share equity market.Series of expected idiosyncratic skewness of each stock are taken from cross section regression models,and Fama-MacBeth regressions are adopted to test relationship between expected return and expected idiosyncratic skewness.The empirical result suggests that there is a significant negative relationship between them,even when controlling for liquidity,co-skewness,co-kurtosis and other factors.This paper also retests the idiosyncratic volatility puzzle,and find that,after controlling for expected idiosyncratic skewness,the negative relationship between idiosyncratic volatility and expected return no longer holds,thus confirming fact that expected idiosyncratic skewness contains a fraction of information of idiosyncratic volatility.Finally,the robustness test by separating samples of big firms and small firms supports above conclusion again.