Importance of Skewness in Decision Making: Evidence from the Indian Stock Exchange

Narayan, Paresh and Ali Ahmed, Huson 2014, Importance of Skewness in Decision Making: Evidence from the Indian Stock Exchange, Deakin University, School of Accounting, Economics and Finance, Geelong, Vic..

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Title Importance of Skewness in Decision Making: Evidence from the Indian Stock Exchange
Author(s) Narayan, Paresh
Ali Ahmed, HusonORCID iD for Ali Ahmed, Huson orcid.org/0000-0002-0186-2564
Publication date 2014-07-07
Series School Working Paper - Financial Econometrics Series ; SWP 2014/11
Total pages 22
Publisher Deakin University, School of Accounting, Economics and Finance
Place of publication Geelong, Vic.
Keyword(s) Returns
Skewness
Predictability
Utility
Investor.
RePEc:dkn:ecomet:fe_2014_11
Summary In this paper our goal is to examine the importance of skewness in decision making, in particular on investor utility. We use time-series daily data on sectoral stock returns on the Indian stock exchange. We test for sectoral stock return predictability using commonly used financial ratios, namely, the book-to-market, dividend yield and price-earnings ratio. We find strong evidence of predictability. Using this evidence of predictability, we forecast sectoral stock returns for each of the sectors in our sample, allowing us to devise trading strategies that account for skewness of returns. We discover evidence that accounting for skewness leads not only to higher utility compared to a model that ignores skewness, but utility is sector-dependent.
Language eng
HERDC Research category CN.1 Other journal article
Copyright notice ©2014, The Authors
Persistent URL http://hdl.handle.net/10536/DRO/DU:30104020

Document type: Report
Collection: RePEc Working Papers
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